How To Apply For a Personal Loan in Canada?

Need some extra cash? A personal loan might be right for you. 

Most Canadians will take out a loan, or several, during their lives for a mortgage, a vehicle, school or personal projects.

In this article, we will discuss how to apply for a personal loan and what to expect once you have been approved. We will also provide tips on how to get the best interest rate on your loan!

What types of personal loans are there?

A typical personal loan in Canada ranges from as little as a few hundred dollars to $50,000 plus and is paid off in fewer than five years. They are options for consolidating debt, financing a home improvement project or taking a vacation. In reality, there is a wide range of personal loan types out there. Anything from a traditional loan from a bank to a payday loan or car title loan qualifies.

Some of these products are more borrower-friendly than others, so carefully consider your options. Interest rates and lending amounts vary dramatically. And they may or may not require collateral.

What you spend the money on also affects the type that you choose.

For example, home equity loans can be used for home improvements or consolidation of other debts, while a personal line of credit can be used for large expenses like vacations or major appliances.

Small unsecured personal loans are more common for smaller purchases like furniture or electronics. Each type of loan has its terms and conditions, so it's important to compare options and choose the one that best meets your needs.

Where can I apply for a personal loan?

There are a few options for where you can apply for a personal loan. One option is to go through a bank or traditional financial institution like Canada’s big 5 banks or a local credit union. You can start inquiring where you already have a banking relationship. Interest rates will be competitive, but credit score requirements will exclude some buyers.

Traditional lenders include institutions like:

Another option is to go through an online lender. There are many different online lenders to choose from, and you may be able to find one that offers greater flexibility than a traditional lender. Flexibility with low credit scores can, however, mean much higher rates, so be careful.

But that’s not all! Other lenders for personal loans can include pawn shops, private lenders and peer-to-peer lending platforms like goPeer.

Whichever option you choose, compare offers from multiple lenders before selecting a loan.

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What do I need to apply for a personal loan?

Most traditional lenders will require the following:

• A good credit score
• A permanent address
• A bank account
• Proof of a steady income to qualify for a loan.

You'll also need to provide some basic information, such as your Social Insurance Number so that the lender can run a credit check.

Once approved for a loan, you will sign some paperwork and agree to the loan terms. Then, the lender will send you the money, usually by direct deposit or e-transfer, but possibly as a prepaid card or in cash too.

How long does it take to apply for a personal loan?

Some online lenders offer instant personal loans. If, on the other hand, you go through a traditional lender, expect the entire process to take a couple of days to a week for an unsecured loan or several weeks for a larger secured loan.

The actual application process should only take a few minutes once your documents are ready. It is the wait for the lender to approve your loan and send you the money that takes the most time.

If you're thinking about applying for a personal loan, the best thing to do is to start comparing lenders as soon as possible. You can avoid delays and get your money quickly by doing your research upfront.

How to apply for a personal loan with bad credit?

Applying for a personal loan with bad credit can seem like a daunting task, but there are a few options available to borrowers:

• Applying for a secured loan: a loan secured by property gives the lender greater certainty that a borrower with bad credit will pay back their loan. Secured borrowing options include everything from home equity loans through a traditional lender, online car title loans and pawn loans.
• Getting a co-signer: if you have poor credit, you may be able to find a family member or friend with a better score to cosign your loan. You can piggyback off of their good credit because they promise to pay back the loan if you default.
• Using an online lender: some online lenders offer more flexible lending standards than their brick-and-mortar counterparts. They can be a good option for some, but watch out for the interest rate and fees, which can be very high.

Just keep in mind that bad credit personal loans typically have higher interest rates than traditional loans, but they can be a good option for borrowers who need fast access to cash.

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How to apply for a personal loan with no credit?

Applying for a personal loan with no credit history is similar to applying as someone with a bad credit history.

Perhaps the most common way to get a personal loan with no credit is to find a cosigner. A cosigner agrees to put their name on the loan with you. They are responsible for paying back the debt if you don't repay it. This option can be helpful if you have a close friend or family member with good credit who is willing and able to help.

Another option is to apply for a secured loan, which uses collateral (such as a car or savings account) to guarantee repayment. These loans may have higher interest rates than unsecured loans, but they can still be a good option for borrowers with no credit history.

What credit score do I need to get a personal loan?

Every lender is different, but most borrowers with a credit score above 600 should have no difficulty getting a loan.

Generally speaking, the higher your credit score, the better your chances of being approved for a loan and getting a lower interest rate. Lenders see borrowers with high credit scores as less risky.

So what's considered a 'good' credit score? While that can vary depending on the lender, a score of 700 or above is generally considered excellent. Below that, you may need to pay a higher interest rate.

Less than perfect credit? It is still possible to get a personal loan with a low credit score. Several lenders specialize in loans for people with bad credit, and these companies may be willing to approve you for a loan if you have a steady income and can demonstrate your ability to repay the debt.

What alternatives are there for applying for a personal loan?

When you need to borrow money, a personal loan can be a good option. But what are the alternatives? Here are some other choices you might want to consider:

• Credit cards: A credit card lets you make purchases now and pay for them later. And if you have a rewards credit card, you may even be able to earn points or cash back on your spending. Keep an eye on your credit card balance and make payments on time to avoid interest charges.
• Personal lines of credit: A personal line of credit is like a credit card in that it gives you the flexibility to borrow money when you need it. But with a personal line of credit, you usually have a lower interest rate, and you can choose to make either interest-only or principal and interest payments.
• Home equity loans/lines of credit: If you have equity in your home, you may be able to take out a home equity loan or home equity line of credit (HELOC). With a home equity loan, you borrow a lump sum of money and make fixed monthly payments over a set period. With a HELOC, you can borrow money as needed up to your credit limit and make variable monthly payments. Keep in mind that your home is collateral on this time of borrowing.

Whatever your loan need, there are plenty of options available.

Just make sure you have all the necessary documentation ready before applying. And if you have bad credit, don’t worry — some lenders cater to borrowers with less-than-perfect credit scores. So whatever your needs may be, there’s likely a personal loan out there that will fit your budget.

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