Comparing Personal Loans in Canada: All You Need to Know
What You Should Know
- Personal loans provide money upfront that you’ll need to pay back in regular installments.
- Most personal loans in Canada are from a bank, a credit union, or an online lender.
- Interest rates for personal loans generally range from 10% - 20% with term lengths of 6 - 60 months.
- Personal loans in Canada are designed to be predictable and stable in the payment schedule.
Popular Personal Loans in Canada
| Lender | Interest Rate (APR)* | Funding Amount | Term Length | ||
|---|---|---|---|---|---|
9.99% - 46.96% | $500 to $35,000 | 9 - 78 months | |||
12.99% - 39.99% | $500 - $10,000 | 9 - 36 months | |||
7.20% - 14.20% | N/A | 12 - 60 months | |||
8.74% - 9.74% | N/A | 6 - 60 months | |||
9.50% - 15.00% (approximately) | $5,000+ | 12 - 60 months | |||
9.65% - 13.20% | $5,000+ | 6 - 60 months | |||
10.00% - 13.70% (approximately) | $5,000+ | 12 - 60 months | |||
11.89% - 15.74% | $500+ | 6 - 120 months | |||
19.99% - 39.99% | $500 - $50,000 | 6 - 120 months | |||
*Rates Sampled February 13, 2023.
**Approximate rates.
About Personal Loans in Canada
A personal loan provides you with money today that you'll need to pay back in the future. Repayments happen in specified intervals, usually weekly, bi-weekly, or monthly. Your repayments cover the interest and fees on your loan and a part of your principal.
Usually, you can borrow $500 to $30,000, depending on your credit and employment history. Your borrowing limit can exceed $50,000 if you provide collateral. Usually, banks accept a car, home equity, and stock portfolios as collateral, but you can also discuss what you can put as collateral with your lender.
Personal loans typically take between 6 and 60 months to repay. They usually have an interest rate between 10% and 20%, but their APR may be higher due to loan origination fees. You should look at the APR when comparing different personal loan offers.
At the end of 2023, personal loans accounted for about 5.2% of the big 5 banks’ lending portfolio. This article walks you through the different types of personal loans, where to get the best loans, eligibility requirements, and the top alternatives.
Pros and Cons of Personal Loans
| Advantages | Disadvantages |
|---|---|
|
|
Types of Personal Loans
There are 2 types of personal loans: secured and unsecured. The main difference between the two is that secured loans require collateral, while unsecured loans do not. The presence of collateral allows a lender to offer better loan conditions for a borrower.
| Secured Loans | Unsecured Loans |
|---|---|
| Require Collateral | Do Not Require Collateral |
| Higher Principal | Lower Principal |
| Lower Interest Rate | Higher Interest Rate |
| Longer Loan Term | Shorter Loan Term |
Secured Personal Loan
- Lower Interest Rate
- Longer Term Lengths
- Higher Borrowing Limits
- Risk of Asset Repossession
A secured personal loan is backed by collateral such as a car, home, or other assets. Failing to make loan payments will result in the seizure of your collateralized asset. As a result, secured loans are less risky for lenders because they can get their money back if you default on the loan.
Due to this, you'll receive more favourable lending conditions. For example, you'll typically have access to lower interest rates, longer repayment terms, and higher borrowing limits. This is why secured personal loans are more popular for debt consolidation loans.
Some of the common types of secured personal loans include:
- Auto Loan: This applies to purchasing a car. You'll need to put up the vehicle as collateral and use it to secure your loan.
- Home Equity Loan: This applies when you're using the equity in your home to borrow money. The lender will take a mortgage on your property, so they can repossess it if you don't make payments.
- Car Title Loan: This applies if you have no credit history or a low one. You'll need to put the title of your car up for collateral, and the lender can repossess it if you don't make payments.
Unsecured Personal Loan
An unsecured personal loan doesn't require any collateral. Due to this increased risk for the lender, you won't receive as favourable lending conditions as you would with a secured personal loan. Additionally, lenders will be extra cautious when assessing your application.
Typically, unsecured loans have higher interest rates, shorter repayment terms, and lower borrowing limits than their secured counterparts. Common types of unsecured personal loans include:
- Private Student Loans: These loans are specifically designed for students to help finance their education.
- Payday Loans: These are short-term, high-interest loans designed to help cover unexpected expenses. It's generally recommended to avoid this option.
Personal Loan Requirements
Lenders may also require information about your assets, debts, and income for a personal loan in Canada. If you choose to take a secured loan, you must also provide information about your collateral. Most lenders will run a credit check to determine your eligibility. Lenders will typically require the following documents:
- Proof of Identity: You must present a valid government-issued ID, such as a driver's license or passport, to verify that you are a resident of Canada above the provincial age of majority.
- Income Documents: Personal loan lenders usually require you to provide documents to prove your income and employment status. These documents usually include paystubs, bank statements, tax returns, etc.
- Credit History: Most lenders will check your credit score to determine your eligibility for a loan.
- Banking Information: Lenders will require you to provide Canadian banking information to deposit the loan funds into your account and set up automatic payments.
- SIN (Optional): Depending on the lender, you may be required to provide your Social Insurance Number.
With this documentation, lenders assess you based on the following criteria:
Income and Expenses
Lenders use your debt-service ratios (DSRs) to see if you have the budget to manage monthly loan payments. A lower DSR will increase your chances of approval because it shows you have more disposable income to make payments.
Lenders also review the stability and amount of your income. Many banks have minimum income requirements. For example, CIBC requires a minimum annual income of $17,000. Similar lenders may also want to see at least three consecutive months of employment.
Lenders may also assess the value of your assets to determine your ability to repay the loan. For example, someone with $10,000 in assets is a safer borrower than someone with $100.
Smaller institutions are usually more flexible with lending. If you cannot get a personal loan with a bank, you can try credit unions and online lenders because they may have lower income and employment requirements.
Credit Score & History
Your credit score is one of the primary factors lenders use to evaluate your loan application. While some lenders offer no-credit-check loans, a good credit score helps secure a lower interest rate and larger loans. Most bank lenders require a minimum score of 660. However, credit unions and online lenders may be more flexible if you have lower DSRs or provide collateral.
Improving your credit score and building your credit history will help you get a personal loan with better terms. Many banks will not lend to you if you've declared bankruptcy in the last seven years.
Collateral (Optional)
Lenders may require collateral (assets such as a car or house) to secure the loan. Collateral helps you obtain larger loans with lower rates because the lender can repossess the asset to cover any losses.
You can also get a co-signer to improve your personal loan conditions. Similar to co-signing a mortgage, your co-signer will be responsible for making missed payments. This will increase your chances of approval, but it is an added risk for the co-signer because they are liable if you can't make payments.
Where to Get Personal Loans in Canada
Banks
Canada's top banks are a good spot to get a personal loan. These are highly regulated and trustworthy lenders with competitive interest rates. They tend to have high minimum funding amounts. Almost every bank has a minimum $5,000 borrowing requirement. Banks also offer 3 to 5-year loan terms if you borrow more than $25,000. This means banks are great for those who want to borrow more money.
Banks usually have the slowest funding speeds with some of the strictest requirements. Most banks provide funding in a few days to weeks. They are also the most selective lenders, meaning you'll need a great credit score and low debt service ratios.
Most loans are assessed on a case-by-case basis, so the best way to get more information is to speak with an underwriting specialist. We have accumulated information to the best of our abilities.
RBC Personal Loan
An RBC credit specialist confirmed that RBC personal loan rates generally range from 9.50% to 15.00%, with the average being around 12.00%. Interestingly, RBC personal loans allow you to skip one monthly payment every year. However, this will result in interest accruing on the missed payment.
National Bank Personal Loan
Your personal loan rate with National Bank changes with a variety of factors. Namely, your term length, loan size, and having a fixed or variable rate.
- Fixed rate loan: Your interest rate will change with the term length and loan size. Loans over $10,000 have a reduced interest rate. Additionally, extending your term length increases your interest rate. Fixed interest rates range from 9.65% - 11.30%.
- Variable rate loan: Your interest rate will only be affected by your loan size. Loans less than $10,000 have a 6.50% spread over the prime rate whereas there is only a 5.00% spread for loans exceeding this amount. This currently translates to interest rates of 11.70% - 13.20%.
BMO Personal Loan
All BMO personal loan applicants are assessed using a benchmark interest rate. If you qualify with the benchmark, your rate is then adjusted depending on your creditworthiness. For example, having a higher credit score will reduce your interest rate from the benchmark.
- Fixed Benchmark Rate: 10.00% at the time of writing.
- Variable Benchmark Rate: 5.45% at the time of writing (BMO Prime + 7.00%).
Credit Unions
Canada's credit unions provide good interest rates and are more flexible than banks. For example, you can still receive a loan with a fair credit score. As a result, they are a good resort for people who have a reasonable financial situation but cannot get a loan from a bank.
The primary downside of credit unions is they typically only operate in a single province. This generally means you must reside in the same province as your credit union and thoroughly research your options.
ATB (Alberta)
While technically ATB is a crown corporation owned by the province of Alberta, the institution is similar to credit unions because it only provides services to Alberta residents. Additionally, ATB is known to be the largest public bank in North America. ATB’s interest rates range with secured and unsecured loans. Additionally, you can select a fixed or variable rate.
First Ontario (Ontario)
To receive a personal loan from First Ontario, you need to be a resident of the province and a member of the credit union. They offer four types of personal loans with choices of a variable vs. fixed rate and secured vs unsecured. Currently, the lowest rate is a fixed secured loan at 8.74%. The highest rate of 9.74% is with a variable rate unsecured.
Desjardins (Quebec & Ontario)
Desjardins is one of Canada’s largest credit unions. Given their size, the $500 minimum limit is quite impressive. Additionally, Desjardins is quite dynamic with their personal loans. The interest rates and term lengths frequently change with the amount you are looking to borrow.
Personal loans begin with a $500 loan for six months. However, you can reach a maximum term length of ten years when borrowing more than $13,000. Your interest rate will decrease as you borrow more.
Online Lenders
Online lenders provide the fastest funding because they typically do not require in-person meetings. They also have more lenient eligibility requirements, making them accessible to individuals with lower credit scores. Online lenders may charge high interest rates and fees, so it's crucial to carefully review all terms and conditions before making any decisions.
To help protect borrowers from potential predatory practices, we have compiled a list of recommended lenders. However, before deciding to take out a loan with any of them, please ensure it is the best option for your case.
SkyCap Financial
SkyCap is a popular online lender in Canada. The application process takes less than five minutes and they assess you on three factors; credibility, stability, and current income. Your loan can be approved in as little as 24 hours.
Fairstone Financial
Fairstone is another popular lender that allows you to apply online or through one of 240+ branches across Canada. Generally, they provide loans to those with fair to good credit scores. As a result, they don’t have the best interest rates but provide access to funding. They offer both secured and unsecured loans depending on your borrowing preferences.
- Unsecured loan: Requires no collateral but has slightly higher interest rates of 26.99% - 39.99%. Additionally, the term lengths are shorter of 6 - 60 months. Processing time takes less than one day.
- Secured loan: Receive a lower interest rate of 19.99% - 24.49% with term lengths of 36 - 120 months. Processing time takes over three days.
Personal Loan Considerations
Interest Rate
Your interest rate is the cost of borrowing your loan. The interest rate offered to you depends on your credit score, income, and other personal factors. The better your credit score, income, and other factors, the lower your interest rate will be.
Lenders offer fixed and variable interest rates. Fixed rates are locked in for the entire loan term, while variable rates can change as the prime rate changes. Before deciding on a lender, make sure to decide which type works best for your situation.
Tip: APR vs Interest Rate
Borrowers commonly confuse interest rates with the annual percentage rate (APR). Interest rates do not include additional fees and costs, while APRs account for them. Many lenders display a low interest rate to lure in borrowers, only to have many hidden fees. Calculating APR provides a better cost of borrowing estimate because it includes fees.
Term Length
Your term length is how long you have to repay your loan. Personal loans typically have terms between 6 and 60 months. Some lenders provide term lengths of up to 120 months to select customers. A longer-term length reduces your monthly loan payment but increases your lifetime interest paid. You may also need more collateral or other documents to get a longer loan term.
Loan Amount
The loan amount is the total amount of money you'll receive upfront from the loan. This can range from $100 to $50,000 for personal loans in Canada. The maximum amount you're approved for depends on a few factors:
- Your credit score: A higher credit score may help you borrow more.
- Your collateral (if any): Secured loans have higher loan amounts.
- Your debt service ratios: Lower ratios may let you borrow more.
Additionally, the type of lender you borrow from influences your loan amount. For example, larger institutions such as banks generally have a minimum of $5,000. Meanwhile, online lenders may let you borrow as little as $100.
Fees
Fees are the additional costs you'll need to pay when taking out a loan. These fees will vary depending on the lender, type of loan, and amount borrowed. Fees can be a defining factor between two similar loans with the same interest rates. You should calculate APR to compare different loans with different fees.
You can negotiate fees with your lender. The following list explains the typical fees for a personal loan and how much you should expect to pay for them:
- Origination Fees: 1% to 5% of the loan principal to cover administrative costs.
- Non-Sufficient Funds (NSF) Fees: There is a $15 - $55 fee for missing payments. Your bank will charge you an additional fee.
- Prepayment Penalty: You may be charged 1 to 3 months of interest on "closed loans" for paying it off early. Most personal loans are "open" and don't have this penalty.
Processing Speed
Processing speed is the time it takes for your loan to be approved and funded. Depending on the lender, personal loan processing speed can range from a few hours to weeks. Generally, the bigger the lender, the longer it takes them to process and fund your loan.
Secured loans typically take longer since assessing your collateral is an extra step. The fastest type of loan would likely be unsecured from an online lender, but they usually have the highest APRs.
Creditor Insurance
Creditor insurance is an optional coverage that pays your loan off if you become disabled, unemployed, or pass away. Depending on the lender, this will either be included in your loan cost or offered as an add-on option. If it's not included in the price of the loan, you'll need to opt-in for it if you want the coverage.
Creditor insurance is only sometimes necessary and is based on your situation. If you lack other forms of disability or life insurance, it may be a good option.
Personal Loan Alternatives
Personal loans provide a lump sum of money upfront to creditworthy borrowers. If you prefer more borrowing flexibility or need to improve your credit score, the following options may interest you.
Credit Cards
Most credit cards have an interest rate of 20%, but it may be an excellent option for small short-term loans. Credit cards do not have origination fees, and they have an interest-free grace period. There are credit cards for bad credit that allow people with poor credit history to get access to a credit card. People with good credit scores have more options that may include the best credit cards in Canada. It is also worth looking at the low-interest credit cards because some have lower interest rates than most personal loans.
Line of Credit
A line of credit is the most flexible type of loan and works similarly to a credit card. Rather than a lump sum, you receive an account with a limit and can draw money anytime. The benefit is that you'll only need to pay interest on the amount borrowed. This contrasts with a personal loan, which accrues interest on the total amount, even if you don't need it all. This option is helpful for those who need short-term access to funds or may need to borrow in the future.
Loans for Bad Credit
If you have bad credit, you may face challenges receiving funding from the above-listed lenders. However, there are loans specifically designed for borrowers with less-than-perfect credit. These typically focus on your income and ability to repay the loan. Bad credit lenders may need a co-signer or collateral. You can visit our article on bad credit loans to learn more.
Friends and Family
Requesting funds from friends and family is an additional option worth mentioning. While this may be awkward initially, being open and honest about your needs can help build trust. Also, many family members want to help their loved ones and provide assistance when needed. It's recommended that a contract be created that outlines the repayment plan and interest rate if necessary.
Disclaimer:
- Any analysis or commentary reflects the opinions of WOWA.ca analysts and should not be considered financial advice. Please consult a licensed professional before making any decisions.
- The calculators and content on this page are for general information only. WOWA does not guarantee the accuracy and is not responsible for any consequences of using the calculator.
- Financial institutions and brokerages may compensate us for connecting customers to them through payments for advertisements, clicks, and leads.
- Interest rates are sourced from financial institutions' websites or provided to us directly. Real estate data is sourced from the Canadian Real Estate Association (CREA) and regional boards' websites and documents.