How to compare and to apply for personal loans in Canada? - 21.02.2019
For everyone Canadian whether he is a national student or a pensioner with a bad credit score, or an employee or even an entrepreneur with a perfect rating, moments in living appear when some amount of money is demanded, but you are unlikely to set aside the purchase or to save enough funds. It can be the costs for your home renovation, education, vacation, debt consolidation credit, an automobile purchase or other consumer purposes. Canadian banks and credit unions, as TD, RBC, CIBC, BMO, Scotiabank, PC Financial, Vancity, Servus, Vancity, Coast Capital, Meridian or private lenders, provide a variety of loan products for personal goals, like overdrafts, lines of credits, secured and unsecured installment loans with variable or fixed percentages rates. So, it is very hard to compare and to check this set of credit products, as well as to get the one which fits you most, especially if you have a bad credit score in Canada, you require instant approval of the personal loan. How to improve your chances and to make getting a loan almost guaranteed case? Bankchart.ca prompts you which steps you should do, in this article. Review date - 21.02.2019
Step one. What is a personal loan? What kinds of the credits are offered in Canada?
There are a lot of moments in our life when cash is needed now, and the necessary sum we will have later. Sometimes we can appeal to our relatives or zero our savings, but more often we have to turn to a bank or a credit union for a personal loan. It may be is the simplest loan to apply for and it will help you to realize practically any consumer goal. They can be provided in the form of installment loans, overdrafts or credit lines. In accordance with our research, the interest rate varies from 2.75% to 7% yearly, and the maximum term ranges from 1 to 10 years. The repayment frequency can be established on a monthly, semi-monthly, weekly basis.
Considering the above we can point such advantages and limitations of personal loans:
1) Competitive interest rates, especially for secured loans
2) A simple way of applying for – a large share of the loans can be applied online
3) Convenient use – by using credit cards, you can withdraw the loan funds at any time you want
4) There are financial organizations on the market with many proposals each
1) Collateral can be required
2) A good credit score may be demanded for unsecured credits
3) Cause habits of making excess costs
There are many causes, why people applying for consumer loans, like:
Home renovation loans. Whether you are going to renew your living room or to fix the outworn floor or simply to buy new furniture – all of these will not be a cheap deal. So, a personal loan may be demanded, which will help you not only to speed up the process but also is a good option to increase the value of your house.
For buying a vehicle. It may be given in the form of a purpose installment credit on the bail of an automobile, or an unsecured one for any consumer needs. Such a car can be used or a new one and may be purchased from an individual or a dealer. The last variant usually has lower interest rates. There are many ways of car financing, such as installment loans, trade-in and leasing, so we will examine this loan in detail in a separate topic.
Debt consolidation loan in Canada. When you suffer from credit card debts, or you got several personal loans before, the debt consolidation proposal may be the service for you to cut down percentage repayments and to simplify the redemption process with one loan.
Education loan – whether you study full-time university or take a refresher course, you can apply for an installment personal loan, which can help you to finance improving your skills.
Loans for living expenses. It is convenient to have constant access to credit funds on a card, for example, to pay for groceries, Internet or heating, or other expenses if you lack money till the next salary.
Vacation – there are moments when you simply are needed to fly away. It can be a duty journey, a trip abroad or just a weekend on Easter. Even if you can afford to purchase the seats, a personal loan can be helpful for you, especially in the form of a credit card with travel privileges.
Medical bills – if your insurance does not cover your medical or dental costs, a personal loan can help you to pay for the treatment.
Wedding. The most significant event in our living is usually very expensive: the ceremony, a photographer, rings and clothing, food and drinks, a honeymoon trip – form a great budget, which is unlikely to be paid by yourself, if only you don’t have rich relatives. So, personal unsecured credit may be required in the form of a line of credit or an installment loan.
Depending on the possibility of providing a lien, personal credits can be:
Secured loans enable you to receive larger sums of financing at lower percentage rates, because a guaranty of the redemption is provided in the form of a pledge, like a home, a car or other assets. In accordance with our survey, the interest rate starts from 2,75% and this loan is also simpler to get, because of the collateral, banks and credit unions in Canada pay less attention to your credit score. But, you should keep in mind that if you don’t pay off the liabilities in time, the financial organization will take away the collateral to sell it to repay the debt.
If your credit score is too poor to apply for a personal loan, you also can appeal to a cosigner. In such a case the financial organization will pay less attention to your credit history and more to the warrantor’s one. Such credits are secured ones and are known as «guarantor loans».
A personal loan against a registered retirement savings plan (so-called RRSP loan) is a type of secured credit. In such a way you still are able to prolong replenishments to your RRSP and also to get the necessary financing. And if you use your tax returns towards the credit redemptions, you can repay the loan faster.
Unsecured personal loans in Canada – fits you if you don’t desire or have no assets to be laid. But, in such a case your bank will also be reinsured and will establish elevated rates, penalty commissions and easily transfer your matter to collateral agencies in the case of in time repayment failure. These personal loans usually have higher interest rates, smaller sums and not the best terms comparing to secured ones, and financial organizations pay more attention to your credit history while making the approval decision.
Depending on the form of a loan granting, the personal credits can be:
Installment loan – is a credit, provided for a specific period of time and is to be repaid only in accordance with the schedule set in the credit agreement. Often is granted for one consumer purpose and versus other personal loans it has larger terms and lower interest rates.
Personal line of credit – is a secured or unsecured credit limit, established by a bank or a credit union in Canada, within the borrower can use the money by tranches at any time he wants. Monthly repayment of only interest expenditures or a part of the loan can be set. It often can be established in the form of a credit card or a home equity loan.
Overdraft is like a loan line, but it is usually established on current or savings accounts. When you go into the debts, the bank charges additional servicing fees, but if you don’t use the loan facility – the commission doesn’t occur. Monthly repayment of the overdraft can be required.
According to the percentage rate type, there are such consumer credits:
Variable rate loans – have a volatile rate, which is based on a prime rate and fluctuates with the changes of the borrowing cost on the Canadian banking market. In such a case you will save on interest payments, if the rate is going to fall, and you suffer if the opposite occurs. Because of such additional risks, it is not recommended to take variable rate loans for the term, which exceeds 1 year.
Opposite, personal loans with fixed rates are stable during the whole term of the credit, regardless of fluctuations on the Canadian financial market. When you got a fixed rate loan, and the Canadian prime rate falls increased, don't upset – you can refinance it.
Step two. Can you refuse a consumer loan? What kind of the credits will suit you best?
Before making an application for consumer credit, you should decide, whether you are able to delay a buy for a little to accumulate the needed amount on a savings account or a card. This is most relevant if it is required only a few months to pile up for a new Apple or iPhone. It allows you to receive additional interest income on the deposit and to save on the loan expenses. And what is more important, you will calculate your monthly revenues, expenditures and the net profit, and will learn how to make cash flow and to manage your expenditures, which will help you in many living moments in the future. But, if it is impossible to postpone the purchase and save up enough money, or you don’t desire to await – a personal loan application will be the best choice for you.
As you already know the needed loan sum, and what amount you are able to direct to the loan repayment each month, you can choose the credit term and the redemption frequency. Bankchart.ca provides you with a personal loan calculator, which will assist you to make such accounts. In accordance with our investigation, the Canadian banks provide personal loans on the term from one to ten years with such periodicity of the repayment: monthly, fortnightly, weekly. It is also important to choose the type of interest rates: variable or fixed, the need for collateral providing, and to select a personal loan kind as a whole. Considering the next points will assist you to select the credit kind, which will suit you best.
- What amount of money is required? If you need less than 2 500 CAD, a credit card will be the best choice for you, because the great part of personal loans is provided for larger terms. And if you are able to repay the card liabilities constantly during interest-free days, you will save up on the card expenses.
- Have you got security for a loan? If you have this possibility, then such advantages of secured loans can be used: bigger maximal sums, longer terms and cheaper interest rates.
- Vehicle purchase. If you are going to buy an automobile, a special target loan instead of personal credit can be used in the form of car credit, leasing or trade-in.
- Bad credit or poor credit rating. If you already applied for a personal loan and was rejected, you can set aside time to try to improve your credit score. But, if you, all the same, need the loan now, you may attempt to apply for secured credits or a small sum line or overdraft.
- You have a frequent lack of small sums to pay for groceries, clothes or the Internet for a month. A credit card or an overdraft on a transactional account - will be the best choice for you in this case.
Step three. How to compare personal loans?
Choosing consumer credit it is very worthwhile to consider all its parameters, like:
The size of percentage rates. Our survey shows, that their level in Canada can range from 2,75% to 7% yearly and can depend on a variety of parameters, like: financial organization, the loan form (term, credit line or overdraft), the availability of collateral, the interest rate type (fixed or variable), the loan sum, your credit score and others. The more opportunities on a loan are provided, the larger is commonly the interest rate. The cheapest, as a rule, are secured term loans, and the most expensive are unsecured lines of credit.
APR or annual percentage rate is another important percentage loan indicator. It is the most accurate mark of credits costs, which considers not only interest but also commission expenditures, on a loan, like:
- Periodical fees. The banks and credit unions in Canada can charge different administrative and servicing commissions, which can influent greatly your loan expenditures. Such tariffs can be charged on a monthly and more rarely on a yearly basis.
- One-time commissions are not often used and can be set as a fixed tariff, for example, for examination of the loan documents.
- Missed payment commission. Establish an automatic repayment of the loan from your transactional account or card and you will never be fined.
- Fees for early repayment of a personal loan may be an unpleasant surprise for the borrower, but they aren't taken by all banks in Canada.
- Insurance cover – if you pledge collateral, you save on interest payments but suffer from insurance tariff. Insurance can be also required for large unsecured credits, for instance, against the case of a job loss and death.
You should also consider other, non-price features of personal loans, like:
- Maximum sum – according to our research ranges from 10 000 to 200 000 CAD
- Maximal term – vary from 1 to 20 years and is greater for educational and secured credits. The higher it is, the lower periodic payments will be, but the greater are the total loan expenditures
- Percentage rate kind - you should choose a fixed or variable one.
- Repayment periodicity – may be monthly, weekly, or fortnightly
- Collateral – can be required to be pledged if you have a poor credit score or apply for a large sum of money
- Additional perks – a free software, for example, cash flow builder or banking mobile application can be useful for you
- Other qualities – free interest days or credit holidays, requirements to revenues and documents - are also important for a loan proposal choice
Step four. How to apply for a personal loan?
Before applying for consumer credit, you may ask for your credit score report to appreciate your possibility of obtaining the loan. Such a request can be taken in one of the largest agencies in Canada, like Equifax or TransUnion for a fee, or free on some sites, like CreditKarma.ca or Borrowell.com. Don’t worry, such a check relates to a soft request and, unlike the hard one, it will not decrease your rating.
To receive consumer financing, you must suit such requirements:
- have 18 years or be older
- have sufficient income
- be a citizen of Canada
- have a regular place of living in Canada
- have a stable place of work or to be a businessman
- have no debt of utility expenditures
- have a current or savings account in the bank
- a credit history will be an advantage
Apply for a personal loan you can with:
· online form
· at a branch
When you apply for a personal loan, a credit manager can ask you some information, like the credit goal, its sum and term, your employment history and demand the following documents:
- Photo ID, for example, a passport, a driver's license
- Financial documents: salary statements, tax returns, statements from savings and investment accounts
- Other documents: a credit history statement, utility bills, statements from credit cards, documents on a pledge, etc.
If you fit the above criteria and provide all the needed documents, you will have good chances to obtain a personal loan, but to get the lowest rates and other best conditions, you should:
- have very good or excellent credit rating with 720 scores and higher
- gain high incomes, at that, the share of the future liabilities payments must be lower 35% of your revenues
- have a good history with no missed credit repayments earlier
After providing all the necessary documents, the financial organization will take some time to decide whether to approve your application. If you applied to one of the largest Canadian banks or credit unions, the approval operation can take 2-3 working days, and after the other 3-5 days, you will be able to use the loan funds.
Also, you can turn to one of a variety of financial sites - financial services aggregators, which accumulates loan proposals of many private lenders. So, you can choose the offer which suits you best. There you can get a loan in 24 hours, and a pre-approval even till 5 minutes. But, it is worthwhile to check whether the lender has the necessary licenses before applying.
If your application was rejected, this could happen for one of the following reasons:
- You have a low credit rating
- You are jobless
- You sent many loan applications at once
- There are mistakes in your credit statement
- You failed to repay some debts in the past
- There are rude inconsistencies or errors in the credit application
- You have high current liabilities
In such a situation you can apply for a secured loan or a smaller one, or to take a co-signer. But if it doesn’t help, you should not make new applications – this may only make your credit rating worse. Take some time to build your credit score and after try again.
In particular, you can take the following actions to increase the chances of getting a consumer loan in the future:
- Improve up your credit rating, for this, you must forever pay all the bills on time, whether it is a small utility bill or a mortgage installment monthly payment
- You should use loan calculators to choose the credit term and sum, which you are able to repay monthly. Because, even if you have a perfect credit score, there are sums and terms, which can’t be repaid even in such a situation. The smaller the amount is and the larger the term is, the lower will be your monthly payment. But, at the same time, a small sum far from always fits you, and higher terms increase your loan expenditures
- You may open a transactional account at the bank – potential lender. In such a way you will increase your chances of receiving a personal loan, especially if you replenish it regularly, for example, transfer to it your salary or pension
- A savings account also is a good way to learn how to control your expenses and to show the creditor, that you will be able to redeem the loan
Step five. How to use your personal loan wisely?
The following steps will help you to avoid unpleasant moments when working with your personal loan, as well as reduce your credit expenses:
- You can make extra repayments if you are able. As a minimum, you may round your payments, for example, from 374.28 CAD to 400 CAD. Even it is better to pay a double or triple tranche. In such a case, you decrease loan overpayment, but also you should examine whether there is no extra repayment fee.
- Each of us has difficult situations in life: illness, leaking roof, or a job loss. If you expect, that financial difficulties will appear soon, you should turn to your credit manager as quickly as it is possible. Maybe your personal loan has a credit holiday option. Even if it is not, the financial organization may propose a new schedule of repayments without fines and penalties to your credit score.
- You may establish automatic repayments from your transactional account or card to your loan. This way you simplify your "credit life" and protect yourself against missed payment commissions.
- If you got a personal loan several years before, and your credit score has increased since this time, or the credit rates on the market are lower now, you may apply for refinancing to decrease your credit payments.
Step six. Personal loans for bad credit rating
More than 1 million Canadians have a bad credit score, so it will be more difficult for them to get a personal loan and if, all the same, it will be provided, the rates and the commissions will be higher. This includes credit ratings with the score 500 or less in Canada and relates not only to people with bad credit history but also to who has no credit practice before.
Unfortunately, Canadian banks, especially the largest are unlikely to provide credit for such clients, but, fortunately, they are not the only lenders in Canada. There are a lot of private obligees, using softer criteria of checking of potential customers.
As banks and credit unions, alternative lenders provide both secured and unsecured personal loans for people. A lot of them propose an online application on their site or on sites of financial aggregators and have no credit history checks, because of examining a variety of other indicators of the potential clients. In particular, you can be asked the following questions of your financial life in the application form:
- Information about your current liabilities
- Your medium monthly revenues and expenditures
- Information about your place of work
- Can you provide a co-signer?
- Other data
But, before application, you should check such lenders for credit licenses.
Consumer credits may speed up your buy and change your living style to better. But, such the chance is rather expensive, the percentage rates and fees are large. So, it is cleverly to set aside the consumer buy, particularly if a few months are needed to save the necessary sum. Remember of a cash flow preparing before applying and obviously check your credit score. You must consider the personal loan features attentively and select the best one. Install automatic repayment from your transactional account and you will never skip the periodic repayments. Pay off your liabilities as soon as it is possible. Stick to the above steps and your personal credit will never trouble you.
Published: 21 February 2019
Author: Prostobank Consulting
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