Comparing Personal Loans in Canada: All You Need to Know
What You Should Know
- Personal loans provide a lump-sum up front that you’ll need to pay back in regular instalments
- They are designed to provide stability and predictability to borrowers.
- Interest rates generally range from 10% - 20% with term lengths of 6 - 60 months.
- You can get a personal loan from a bank, credit union, or online lender.
Otherwise known as an instalment loan, a personal loan provides you with money today that you'll need to pay back in the future. Repayments happen in pre-decided intervals such as weekly, bi-weekly, or monthly. These repayments are known as instalments.
For the privilege of borrowing, you'll need to pay back more than you originally borrowed. This includes interest and fees. Commonly, you can borrow $500 to $30,000. However, it can exceed $50,000 if you provide collateral. In addition, you'll typically have between 6 and 60 months to repay the loan.
This article will walk you through everything you need to know about personal loans in Canada. This includes the different types, where to get the best ones, eligibility requirements, and the top alternatives. Continue reading to become an expert in personal loans. Note that the table below shows a collection of the top options. Each lender is explained further in the article.
Tip: APR vs Interest Rate
Borrowers commonly confuse interest rates with annual percentage rate (APR). This can be an expensive mistake because the interest rate doesn’t include additional fees and costs. Many lenders display a low interest rate to lure in borrowers, only to have many hidden fees. However, calculating APR provides a better cost of borrowing estimate because it includes fees. The rates below are displayed in APR to provide the best lender comparison
Most Popular Personal Loans
| 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 | |||
9.45% (Ends March 27, 2023) | $5,000 - $50,000 | 12 - 84 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.
Tip: Difference Between Personal Loans and Lines of Credit
Knowing the difference between personal loans and lines of credit is essential. These are the two most common lending options and vary in their borrowing and repayment structure.
- Personal loans provide more stability. You'll receive a lump sum and need to make regular payments until the loan is paid. Generally, you'll have a fixed interest rate meaning your payment won't change.
- Lines of credit are more flexible.You'll receive access to funds up to a specific limit. You can withdraw the money at any time and only get charged for the amount borrowed. However, you'll likely have a variable interest rate meaning your payments on borrowed amounts will change with the prime rate.
Personal Loan Advantages and Disadvantages
| Advantages | Disadvantages |
|---|---|
|
|
Advantages
- Predictable payments: You'll easily know how much you need to pay each month to budget for the repayment.
- Flexible purpose: Personal loan funds can be used for any purpose, such as debt consolidation, home renovation, and more.
- Fast funding times: With online lenders, you may receive your loan funds within hours of approval.
Disadvantages
- Penalties for missing payments: Not only will your credit score drop, but you'll also incur fees, and any collateral may be seized.
- Less flexibility: Unlike a line of credit, you'll receive the entire loan upfront and begin paying interest. You'll even pay interest on the amounts you don't use.
The Two Types of Personal Loans
Personal loans can either be secured or unsecured. While most personal loans are unsecured, it's essential to understand the difference.
- Secured loans provide more beneficial borrowing conditions, such as reduced interest rates, prolonged repayment schedules and higher loan amounts, since they are supported by collateral like a house or car.
- Unsecured loans don't need collateral and thus are more dangerous for creditors. This gives rise to higher interest rates, reduced repayment terms, and maximum borrowing limits. However, you'll receive funding faster and won't risk any assets.
Secured Personal Loan
Lower interest rate
Longer term lengths
Higher borrowing limits
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
No collateral required
Faster approval times
Lower borrowing limits
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.
Where to Get Personal Loans
Banks
Beginning with Canada's top banks is a good spot to begin searching for a personal loan. These are highly regulated and trustworthy lenders with competitive interest rates. However, they tend to have high minimum funding amounts. Almost every bank has a minimum $5,000 borrowing requirement. In addition, to receive term lengths of three to five years, you’ll need to borrow more than $25,000. This means banks are great for those who want to borrow more money.
Since they are large institutions, they generally have the slowest funding speeds. Most banks provide funding in a few days to weeks. Additionally, they are the most selective lenders, meaning you'll need a great credit score and low debt service ratios.
Banks are also very secretive about their financing terms and offer little public information. This is because they already have a reputation so they don't need to compete on rates.
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.
TD Personal Loan
TD is offering a promotional fixed rate of 9.45% until March 27 2023. This rate applies to any term length between one to seven years. When this promotion ends, it’s assumed the TD personal loan interest rate will increase the standard bank rate, where the average is around 12.00%.
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: 7.2% at the time of writing (BMO Prime + 7.00%).
Credit Unions
Canada's credit unions also provide great interest rates but with more lending flexibility than banks. For example, you can still receive a loan with a fair credit score. As a result, they are somewhat of a middle between banks and online lenders.
The primary downside of credit unions is they typically only operate in one province. This generally means you'll need to be a resident of the same province as your credit union.
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 or conversations. Additionally, they tend to have more lenient eligibility requirements, making them accessible to individuals with lower credit scores. However, it's important to note that 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 put together a list of recommended lenders. However, before deciding to take out a loan with any of them please ensure to conduct more research. This can include reading additional reviews and checking Better Business Bureau (BBB) complaints.
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 Requirements
You'll need to provide personal and employment information to qualify for a personal loan in Canada. Lenders may also require information about your assets and debts. You'll have to provide information about your collateral with a secured loan. Almost every lender will require a credit report 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. This is to verify that you are a resident of Canada above the provincial age of majority.
- Income documents: Lenders usually require you to provide documentation to prove your income and employment status. This could include paystubs, bank statements, tax returns, etc.
- Credit history: Most lenders will check your credit score to determine if you are eligible 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 on the following criteria.
Income and Expenses
Most importantly, lenders will calculate 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.
Additionally, lenders will review the stability and amount of your income. Many banks are risk-averse lenders and 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. They may go as far as contacting your workplace.
As a rule of thumb, smaller institutions are more flexible with lending. This means credit unions and online lenders 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.
If you want to improve your chance of getting a loan, you can review our guide on how to get a better credit score. Aside from your current score, many lenders will review your history. For example, CIBC will not lend to you if you've declared bankruptcy in the last seven years.
Collateral (Optional)
Finally, lenders may require collateral (assets such as a car or house) to secure the loan and minimize their risk of default. Collateral helps you obtain larger loans with lower rates because the lender can repossess the asset to cover any losses.
Another form of collateral is a co-signer. Similar to co-signing a mortgage, they 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.
Even with unsecured loans, lenders may assess the value of your assets. This is to determine your ability to repay the loan. For example, someone with $10,000 in their chequing account is a safer borrower than someone with $100.
The Finer Details
Interest Rate
Your interest rate is the cost of borrowing expressed as a percentage. This will vary based on your credit score, income and other personal factors. Generally speaking, higher scores lead to lower rates and vice versa.
It's important to note that lenders may offer either fixed or variable interest rates. Fixed rates are locked in for the entire term of the loan, while variable rates can increase or decrease at any time. Make sure to decide which type works best for your situation before deciding on a lender.
Term Length
Your term length is the amount of time you have to repay your loan. Personal loans typically have terms between 6 and 60 months. However, some lenders, such as Fairstone, provide term lengths of up to 120 months. A longer term length reduces your monthly loan payment but increases your lifetime interest paid.
Additionally, you'll need to become more creditworthy to qualify for extended term lengths. The lender is taking more risk by waiting longer to get their money back. Aside from having a higher credit score, you may also need collateral to receive term lengths over 60 months.
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 in Canada. However, the maximum amount you're approved for will depend 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. Note that fees aren't included in your interest rate. As such, it's essential to calculate APR to determine the actual cost of borrowing.
Sometimes you can negotiate fees with your lender. The following bullets explain the typical fees 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: $15 - $55 fee for missing payments. Your bank will charge you an additional fee.
- Prepayment penalty: 1-3x 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, this can range from a few hours to a few weeks. Generally speaking, the bigger the lender, the longer it will take for them to approve and fund your loan. For example, large banks typically take longer to provide funding than online companies.
In addition, 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.
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. However, if you lack other forms of disability or life insurance, it could 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.
Line of Credit
A line of credit is the most flexible type of loan. 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. For example, if you have a $30,000 limit and withdraw $5,000, you'll only pay interest on the $5,000. 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 to create a contract that outlines the repayment plan and interest rate if necessary.