When you’re looking to take out a personal loan in Canada, it’s easy to get overwhelmed by the number of options available to you. In fact, some people get so overwhelmed that they end up with a loan that’s completely wrong for them. This could be quite costly.
On this page, we want to share with you a few ideas that will hopefully make it a bit easier for you to find a loan that is right for your needs. It will take a bit of time on your part to choose a personal loan, but trust us, it is time well-spent.
When should you get a personal loan?
There are only a few situations where you should be considering loans. In every case, taking out a loan should be the last resort. After all, if you take out personal loans, you are burdening yourself with debt for the next few months or years.
The main reason why people consider taking out a personal loan is to help fund a larger purchase or expense. For example; a vehicle, home renovation, or unexpected bills. Of course, if you do take out a loan to fund a large purchase, you need to make sure that you’ll be able to keep up with the repayments.
Other people will take out a personal loan to help consolidate their debts. For example; if you are overwhelmed with credit card debt and bills, you may actually find that it is a lot cheaper to take out a personal loan and pay off as much of this debt as possible. You can save a huge amount in interest fees here. However, you should be aware that this isn’t really a viable option if you have been drowning in debt and struggling to keep up with repayments for a while. This would mean you have a poor credit score, and this can make it a whole lot more difficult to borrow cash.
No matter what your reasons for borrowing money are, you will want to take the time to track down the best personal loans in Canada for you. Remember; a loan that may be brilliant for one person may not necessarily be as brilliant for another.
How to choose the best personal loan for you
In this section, we want to run you through some of the questions you should be asking yourself when seeking out a personal loan. By thinking about the answers to these questions, it should help you narrow down the lender that is right for you.
What is your credit score like?
When you are looking for a personal loan, you need to know your credit score. Once you have this information, it becomes much simpler to narrow down the type of loan you can apply for, as well as the lenders you could be working with.
If you have a poor credit score (i.e. a history of missed payments or masses of debt), then you will find it dreadfully difficult to borrow. Traditional bank loans certainly won’t be an option for you. Some alternate lenders may consider you, but if they do make you an offer, it will be tied to a huge interest rate and huge repayment fees each month. In many cases, those with abysmal credit scores may find that the only option available to them will be a payday or title loan.
If you have an OK credit score (but nothing to write home about), then you will start having some options available to you. It is still likely that bank loans will be locked off, but there are plenty of alternate lenders out there. If you hunt around, most should be able to make you a loan offer.
If your credit score is brilliant, then you have a wealth of options available to you. Nearly every single lender will be wanting to work with you. In this case, it may actually be more affordable to opt for a traditional bank loan. Although, do bear in mind that these loans can take a little bit longer to process.
How much do you need to borrow?
Of course, you will need to think about how much cash you need to borrow. If you only need a small sum of cash (a couple of hundred dollars, at the most), then payday loans may be the best option for you. Sure, they may be a bit more expensive, but many other lenders will not loan to people that need such little cash.
If you need $500 or more, then you will have more options available to you. $500 is often the starting point for most personal loans from many of the alternative lenders in Canada.
Remember; you will likely struggle to borrow more than a few thousand dollars with most lenders. Some lenders claim that they can offer loans up to $35,000 (and in some cases more), but do remember that you are unlikely to ever be approved for a loan close to this. These maximum loans are often reserved for those with an amazing credit score or those that have worked with the lender before and shown they can meet their repayments. Most people will be able to borrow around the $10,000 mark (assuming an OK credit score)
Remember; never borrow money for the sake of borrowing. You should only ever borrow what you need. It will make your repayments so much easier to deal with.
How much can you repay each month?
Before you apply for a personal loan, it is important that you create a budget. You need to know what’s going in and out of your bank account each month. This way, you’ll be able to get a rough idea of how much you can afford to pay towards your loan each month. This will greatly help in narrowing down your personal loan choices.
How quickly do you need the money?
Most personal loans will take at least 3-4 days for you to receive payment. A traditional bank loan could take weeks for the payment to be received. The right personal loan for you will be one that allows you access to the money when you need it. So, think long and hard about when you need the cash. It will help to narrow down your lender choice. Most lenders should have an ‘average payout’ time listed somewhere on their website.
Payday loans and title loans will likely be able to pay out ‘the same day’. However, as we said before, this is a very expensive way of borrowing. Only opt for one of those loans if you need the money quickly and simply cannot wait. In most cases, it really is going to be worth waiting for that extra couple of days.
What is the interest rate on the loan?
When you’re comparing personal loans, it is vital that you look at the interest rate. Obviously, you will want the interest rate to be as low as possible. Do bear in mind that the riskier you are seen as a borrower, the higher the interest rate will be. It is not uncommon to see people with a poor credit score often paying 40% interest on a loan.
How flexible are the repayment terms?
Ideally, you want a loan with flexible repayment terms. Every single loan is likely to have a minimum monthly repayment on it. However, the best personal loans in Canada will allow you to make higher payments if you wish, with absolutely no penalty. This will allow you to climb out of debt a whole lot quicker.
Factors to consider before making a decision
Assuming you followed our advice in the previous section, you should now be well on your way towards knowing exactly how to find the right personal loans for your situation. However, before you make that final decision, you do need to make sure that the lender is a good fit for you.
What are the lender’s requirements?
While your credit score will be the main factor in whether a lender can loan you cash, you need to be aware that most lenders will also have additional requirements that you need to meet. It is important that you find out what these criteria are before you apply. After all, you absolutely don’t want that credit search on your file if you stand no chance of being approved for personal loans with a provider.
Perhaps the biggest requirement for most lenders will be your yearly income. They need to ensure that you have the capability to pay back your loan. Some lenders may even require you to meet certain ‘credit utilization’ numbers on your credit report, although this is becoming rarer as your credit score should tell a lender everything there is to know about you.
Are there any hidden fees?
While most lenders will disclose all the fees related to your loan before you commit to the agreement, not all of them will do so in a clear and direct way. There are some lenders that will keep some fees ‘hidden’. This can be an expected surprise when it’s time to repay your loan. That being said, it’s important that you dig through the terms and conditions to make sure you know exactly what needs to be repaid. This will also make it easier for you to compare lenders.
While nobody ever expects to miss a payment on their loan, the unexpected does happen. Because of this, you should always check the lender’s charges for missed payments.
Do they report to credit agencies?
Nearly every lender will report repayments (and missed payments) to credit agencies. Make sure they do. If you’re borrowing money and paying it back, it would be nice to see a rise in your credit score, and this will help make borrowing a little bit easier in the future.
Are there any fees for early repayment?
Ideally, you will want to try and get out of debt as fast as possible. As a result, you want to ensure that the lender you work with makes it easy to repay loans early (if your finances allow you to do so).
Is the interest rate really that competitive?
Make sure you shop around for a personal loan. However, it’s not advisable to simultaneously apply for countless loans because this isn’t good for your credit score.
Every major lender in Canada should have reviews written about them. Perhaps the best way to find out whether a company truly is offering the best personal loans in Canada is to read through these reviews. Learn more about the experiences that other people have had with that company. This will make it a whole lot easier for you to find a quality lender.
Finding the right personal loan can be a long and difficult process. However, it’s always smart to allot ample time for you to find the best personal loan in Canada. If you want to find more info on Canada’s best rates, Rate Genie is a great resource.