Compare personal loans

A personal loan can help finance larger one-off purchases, consolidate debts, and more.

By   |   Updated 30th October 2020

Comparing Compare personal loans for $10,000.00 over 36 months

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Overview

A personal loan is an amount borrowed from a bank or other lender, which is repaid by installments, including interest charges.

Not only can you shop for car insurance, life insurance, and mortgages online, but it's getting easier than ever to find personal loans from a number of lenders through the internet. There is a variety of options for you to choose from based on your financial situation and needs.

Types of personal loan

There are a number of different types of personal loans you can apply for through financial institutions or online:

  • Secured personal loan. The amount you borrow is secured against some kind of collateral, such as a bank cash deposit, a car or real estate.
  • Unsecured personal loan. If you have a good credit score and income you can avoid providing collateral to secure the loan.
  • Fixed rate personal loan. The interest rate you are charged does not change during the loan repayment term.
  • Variable rate personal loan. The interest rate may go up or down in line with changes in the lender's prime rate.
  • Specific purpose loan. This includes car loans and student loans.
  • Debt consolidation loan. Money borrowed via a personal loan can be used to pay off existing loan and credit card debt so that there is only one loan left to keep track of and repay, ideally at a lower overall interest rate.
  • Unspecified purpose. You may need extra funds to purchase new technology or a home appliance, to go on a vacation, pay medical expenses or make home improvements. These, and many more, are all valid reasons for applying for a loan.

Features of personal loans

Loans have widely varying features, including flexible loan amounts and repayment periods, various interest rates, account-keeping fees and other charges, differing eligibility requirements, and the quantity of documentation required and turnaround time when applying for the loan. You'll need to take all these factors into account when deciding which loan to apply for.

Benefits of a personal loan

The best personal loans have some great benefits that approved applicants can take advantage of if they have good credit. This includes potentially lower interest rates than other types of borrowing, such as credit cards. Usually the difference in the interest rate between a personal loan and credit card is substantial enough to save you a lot of money when it comes to your monthly payment amounts.

After they review this interest disparity, people often use a personal loan to consolidate their debt. When the debt is moved from your higher interest credit cards and onto your lower interest personal loan, you're paying back the amount you owe faster because more of the repayment is going towards the existing balance and not each month's new interest charges.

Personal loans and credit scores

When you apply for a personal loan in Canada, the lender will do a credit check to make sure you're eligible for the loan. Your credit history contains details of your repayment activity for existing and past debts, as well as your monthly bills. This means that if you pay your bills and debts back on time, you're going to have a better credit score than if you missed a payment or were late paying a bill.

If you have a low credit score you will either get denied for the personal loan or have to pay a higher interest rate to get approval. To find the best personal loan for your needs at a lower interest rate, you should make sure your credit score is at least 650 before applying for the loan. However, it is still possible to get a personal loan with a credit score lower than this.

Personal loan alternatives

If you aren't sure a personal loan is the best choice for your needs, there are a number of alternative options for you to choose from. Check out these alternative options to see if one of them fits your situation better.

Line of credit

The nice thing about a line of credit is that you can apply for an agreed amount and have that balance to use as and when you see fit. You don't need borrow the full amount you were approved for all at once, as is the case for personal loans. Also, you're only charged interest on the balance you owe on rather than on the entire approved amount. A line of credit is suitable when you're not sure how much you will need to borrow, or if you're planning to make a series of smaller purchases over a long period — such as when doing home improvements.

Low interest credit card

A credit card with a lower rate is a great alternative to a personal loan because it allows you to earn rewards and build credit while giving you access to the money you need. Even if you don't have the best credit score, you may still get approved for a low interest credit card depending on the lender.

Balance transfer credit card

Many credit card issuers offer low promotional interest rates to applicants on balance transfers from existing loans and credit cards to their new card. You may be able to pay low interest — possibly no interest — on transferred balances for six months or even a year, but there may be a balance transfer fee to pay, of between 1% and 3% of the amount transferred. This method offers great repayment flexibility, but watch out for the high interest rate you may have to pay if you haven't fully cleared your debt by the time the promotional period expires.

Home equity line of credit

This type of loan lets you borrow against the equity in your house — that is, its market value minus the current balance owing on your home loan — and can be a good way to get a loan with a lower interest rate. Lenders will be expecting you to have at least 20% equity in your home.

You need to be confident in your ability to pay back the loan before going with this option, because the lender can initiate foreclosure if you default. You should also keep an eye on your mortgage interest rate to ensure it isn't about to increase before you take out this type of loan.

Learn about personal loans

Find out how personal loans work and what to watch out for with help from Finty's team.

  • Pros & cons

  • Tips

  • FAQs

  • Glossary

Additional fees may apply

Even the best personal loans typically have a fee or two attached to them. The most common fee you can expect from lenders is an origination fee of anywhere from 1% to 6% of the total amount borrowed. This expense is to cover the cost of processing your loan.

You may also be penalized for paying your loan off too quickly, because the lender factored in the number of interest payments they expected to receive when they set your interest rate. These extra costs are why you should always read the details in your loan terms and conditions before signing up.

Debt consolidation loans can cause problems

If you're using your loan to pay off other loans, your financial situation can quickly spiral out of control if you aren't disciplined. This is also true if you're trying to pay off your credit card with a personal loan, only to start using your credit card again. The debt hasn't gone away but only moved from one location to another, and you still need to repay it.

Low interest rates

When compared to credit cards, personal loans have much lower interest charges. This saves you money when you get a loan to pay for large purchases, rather than using your credit card. Just remember that you may need excellent credit to get the lowest interest rates.

Perfect credit score isn't necessary

If you have bad credit, or a slightly lower score than what is considered good credit, you don't need to worry about your credit score quite as much with a personal loan. But you do need to realize your interest rate will be higher if you have bad credit.

Versatile

A personal loan (unless for a very specific purpose like a car loan or student loan) does not have any restrictions on its use and can be used for any number of purposes. This includes unexpected medical expenses, a vacation, car repairs, home improvements or debt consolidation.

You may not qualify for the lowest advertised rate

While lenders may advertise a low interest rate, or a range that starts with a low rate, you may not qualify for the low rate because your credit score isn't high enough. The interest rate you'll be offered is directly impacted by your score.

Avoid payday loans

There are a lot of lenders out there who push payday loans as an attractive alternative to other types of loans. The problem with these loans is that the rates are so high they can be difficult to pay back. Payday loans target people with poor credit history and a lot of credit card debt, making it an option you should always try to avoid.

Check your credit score before you apply

You can get a free copy of your credit history and score once every 12 months from either of the Canadian credit bureaus — Equifax and TransUnion. It's a good idea to do this before you apply for a loan, so that you know your score (in case there's a minimum credit score specified by the lender) and also so that you can request the bureau to fix any errors you see in your credit report that may be reducing your score.

Compare all the loan features

Don't just apply for a loan with the lowest apparent interest rate. Make sure you check for any origination or early repayment fees payable, the loan amounts available, loan repayment periods offered, and any eligibility requirements such as a specific minimum credit score or income. Doing your research by comparing all the features will mean that you'll end up with a loan that's best suited to your needs.

Consider a co-signer if you're having difficulty getting approved

If your credit score or income is too low for you to get approved for the loan you want, or you're being offered low loan amounts or high interest rates, you could ask a family member or friend with a good credit score and income to co-sign your application. This means that they will be responsible for repaying the loan if you default, so they need to understand what they are getting into.

Read the fine print

There is a lot of paperwork when it comes to signing up for a loan. Not only can it be overwhelming to read through it all, but some of the loan terms may be difficult to understand. However, it's critical that you pay attention to the loan's details to ensure you understand what you're signing up for. Check that you are fully aware of the loan principal amount, interest rate, any fees payable (such as origination fees and early repayment fees), the monthly repayment amount and how to make the payments.

Shop around for the best loan

You shouldn't limit your search to traditional banks when it comes to finding the personal loans best suited for your needs. For years people have relied only on large banking institutions, but other potential lenders are becoming more common, including online banks and smaller online lenders. These alternative options usually have a lower interest rate, especially if you have fair credit and a good income.

Work on improving your credit score

If you think your low credit score is preventing you from qualifying for the best loans, there are ways to improve it. Aim to pay your bills on time, pay down your existing debts to improve your debt-to-income ratio and credit utilization rate, and limit the number of credit applications you make (because your score will be reduced each time a lender checks your credit history).

Can I get a personal loan instantly?

The fastest way to get loan is to apply online. Depending on the loan term, amount, and your credit score and income, online approval time can range between a few minutes and 24 hours or more.

Can I get a personal loan with bad credit?

You can still be approved for a personal loan if you have bad credit, but you'll have to accept a higher interest rate and probably a lower loan amount than you might like.

Does my credit score affect the interest rate?

When it comes to loans, the best rates are a direct result of your credit score. If you have a good score you'll pay far less interest.

Does my salary affect how much I can get?

If you have a higher monthly household income you will be approved for a larger loan amount. This is assuming your credit score is at least 650. The best case scenario is having a high income with a good credit score, along with credit cards that don't have much owing on them.

How does a personal loan affect my credit score?

While this type of loan will slightly reduce your credit score when you first sign up, making payments on time will quickly build it back up once your repayment history gets reported to a credit bureau.

How is APR Calculated?

The APR (Annual Percentage Rate) is the actual cost of funds for your loan, including not only interest charges but also the effect of any fees you may have to pay upfront and/or during the loan term.

What are the average eligibility requirements for a personal loan?

You need to be a citizen or resident of Canada over the age of majority — usually 18, depending on where you live. You also need to have a Canadian credit score, and while there is no minimum score, ideally it should be at least 650. There is often no minimum income requirement, but a having a monthly household income of at least $1,000 before you apply is a good idea.

What are the main types of personal loan?

The main types of a personal loan are secured, unsecured, variable, fixed, car loans, student loans and debt consolidation loans.

What is considered a good rate for a personal loan?

Interest rates offered vary widely between borrowers. At the time of writing there were rates available as low as 5%, occasionally lower, but this can change quickly, and you'll only get a low rate if you have a good credit score.

What is the maximum personal loan amount?

While it depends on the lender, most personal loans are limited to a maximum of $50,000 with a term of anywhere between six months and five years.

What's the difference between a fixed and variable personal loan?

A fixed loan has the same interest rate throughout the entire loan period. A variable loan means that the rate may change over time while you have the loan.

What's the difference between a secured and unsecured personal loan?

Secured loans are secured against an asset like your car, home or bank deposit. The lender could take possession of your asset if you default on the loan. But unsecured loans do not require any collateral to be pledged..

Which is better — a personal loan or line of credit?

Typically, loans are best for large purchases or for consolidating balances from credit cards to reduce debt payments. A line of credit may be better for a series of smaller purchases, or if you don't know exactly how much you need to borrow, or your income — and therefore your monthly repayment ability — is irregular.

APR

Annual percentage rate (APR) is defined as the cost you pay each year to borrow money. It includes not just interest charges but also any other fees you will have to pay.

Co-signer

A co-signer is someone who applies for a loan with someone else and is obligated to repay the debt if the other people is unable to do so. This helps people with lower credit scores get approval for their loan.

Credit history

A collection of information, complied by a consumer credit bureau, that provides details on your repayment history with bills and loans.

Credit utilization rate

The percentage of credit available to you that you are currently using, typically concerned with revolving credit, such as credit cards. For example, if you have a credit limit of $10,000 on your credit card but your current balance owing is $3,000, your credit utilization rate is 30%.

Debt consolidation

A method of combining different forms of debt into a single debt by using the single new debt to pay off several existing debts — typically credit card debt, but also other loans with a higher interest rate.

Debt-to-income ratio

The total of your existing monthly debt payments divided by your monthly income and expressed as a percentage. Lenders use this ratio as a guide to whether you can afford to pay back the loan you are applying for.

Fixed rate

An interest rate that does not change during a loan's repayment term.

Lender

A financial institution or business that offers loans to approved borrowers.

Line of credit

A type of loan that sets a borrowing limit that you draw down against as needed, rather than taking the whole amount upfront.

Loan term

The length of time you have to pay back the loan, usually expressed in months or years.

Secured loan

A loan that is secured against an asset, usually a house or car. The asset is used as collateral, and the lender could take possession of it in order to recover their losses if the borrower defaults on the loan.

Unsecured loan

A loan that isn't secured against any collateral.