Hamilton, being one of Ontario’s largest and fastest growing cities, is a great place to call home. That said, as a resident of a major urban area, you’ll typically be subject to a higher cost of living than you would see in the rural parts of Canada. If that’s the case, it’s beneficial to have a decent income and credit score, as well as several different methods of paying for your expenses.
Applying for a personal loan in Hamilton is a great way to supplement your income, especially if you’re dealing with an unexpected expense or need to make a large purchase. Keep reading for everything you need to know about how this type of financing can help.
Getting Approved for a Personal Loan in Hamilton
In general terms, a personal loan is a lump sum of money that you can apply for through various financial institutions, otherwise known as lenders.
There are banks, credit unions, and other ‘prime’ lenders, where approval standards are a bit more strict but loan conditions are usually more favorable. Then there are private and alternative lenders, also known as ‘subprime’ institutions, where loans are sometimes smaller and more expensive but easier to obtain with lesser financial health.
Either way, any personal loan you apply for in Hamilton will typically be deposited directly into your bank account a few days after your application has been approved. The borrowed sum would then be divided into equally sized installments, allowing you to repay the loan over time and ultimately make it more affordable. Some lenders will even permit you to pay your loan off early with accelerated installments, penalty-free.
Make sure you avoid these common personal loan application mistakes.
Strengthening Your Finances and Application
When it comes to personal loans, every lender’s policies and approval process will be somewhat different. As mentioned, the average bank will have tougher standards to beat than most privately owned institutions. Nonetheless, being properly prepared to apply is key if you want the best conditions all around for your personal loan.
Essentially, getting approved is all about risk assessment. The healthier your financial profile is, the more likely you’ll be to make your upcoming payments on time and in full, so lenders will be inclined to approve you for more money at a lower interest rate. Of course, the opposite will often occur if you have less healthy finances and a record of defaulting on previous credit products.
If you want the best chances of getting approved for a favorable personal loan, make sure to take the following precautions before you apply:
- Research and compare lenders in Canada to find the best loan conditions/rates
- Ask your chosen lender what personal/financial documents you’ll need to apply
- Organize and update those documents accordingly (bank statements, etc.)
- Have a stable source of employment/income
- Increase and save up as much income as possible
- Create a detailed budget and reduce any unnecessary expenses
- Request a free yearly copy of your credit report from Equifax and TransUnion
- Check both versions of your report for signs of error, fraud, and identity theft
- Improve your credit score if it is at or below 600
To further increase your odds of approval when you actually apply (especially if your financial health is insufficient) you can take these extra steps:
- Offer an asset (house, car, etc.) as collateral
- Find a stronger borrower to cosign your application
- Fill out your application honestly and completely
- Avoid applying too many times in a row if your first application is denied
Note: Offering collateral or a cosigner, otherwise known as loan security, are two ways of earning more favorable personal loan conditions, particularly when you have a low income or bad credit. As this would lessen the risk that your lender is taking on you, they’ll be more likely to give you a larger loan with a better rate.
However, before you offer any form of security, you must be aware of the risk that you yourself would be taking. For instance, by offering collateral, you’ll be letting your lender claim temporary ownership over your asset, meaning they’ll have the right to sell it if you miss too many loan payments. If you have a cosigner, they will become responsible for your payments under similar circumstances, which can put their finances in jeopardy.
Therefore, you should only offer loan security if you (and your potential cosigner) are fully aware of and able to handle the responsibility involved.
For an even more detailed look at qualifying for a personal loan, click here.
How a Personal Loan Relates to Your Credit
Depending on the lender you apply with, your loan payment activity will likely get reported to Canada’s two main credit bureaus (Equifax and TransUnion). Each bureau has a slightly different version of your credit report on file, which is a detailed portfolio containing records of all your credit-related actions and accounts over several years.
When you complete or default on a loan payment, said activity will also cause your credit score to fluctuate positively or negatively.
Your credit score is a three-digit number ranging from 300 to 900 and, like your credit report, is assigned to you once you become a credit user (for more information about what your credit range means, click here). If you make a payment on time and in full, your score goes up. The opposite will occur if you make a late or short payment, or if you miss one entirely.
When you apply for a new credit product, personal loans included, some lenders will perform a hard inquiry into your credit report, wherein they’ll also be able to see your credit score. Both of those elements are then used to judge your ability to handle any payments you would have to make if approved.
If your credit report is error-free, your credit score is high, and you show little sign of defaulting throughout your payment plan, the results will be better for your application.
Good vs. Bad Credit Score
As mentioned, it’s also best to improve your credit score before you apply, especially if it is currently at or below 600. This is because a score of 300 – 600 usually means you have bad credit and therefore a higher chance of defaulting on your payments, which often leads to a smaller, more expensive loan, if not total rejection from many lenders.
On the other hand, a credit score above 660 signals that you have good credit and far less chance of defaulting, leading to much more positive results.
Don’t worry, even if you only manage to get approved for a more expensive subprime loan, any payments that you complete will gradually elevate your credit score to the point when this will no longer be a problem.
The Difference Between Personal Loans and Credit Cards
In the world of lending, there are many different credit products you can apply for, some are fixed amounts of cash, like personal loans, and others have revolving credit limits, like credit cards.
Both of these credit types can be good or bad for certain financial situations, so it’s best to study up on them before you choose the one that best suits your profile.
Depending on how much money you apply for, a personal loan in Hamilton can be larger than the average credit card limit. It is also money in your bank account, so you can choose to either withdraw physical cash or pay off an expense using your debit card. This makes a personal loan the perfect solution if you have bigger, one-time costs to cover (such as the examples listed in the section below).
A good personal loan can also come with a better interest rate than traditional credit cards, particularly if you have a longer repayment term (short terms equal higher rates) and healthy finances.
However, being that you’ll have mandatory payments over several months to several years, a personal loan is a slightly more high-risk product. Not only would you incur late penalties and interest with every defaulted payment, but you could also jeopardize any loan security you offered and severely damage your credit in the process.
How to find the best personal loan to meet your needs this year, click here.
More commonly seen amongst borrowers, a credit card is usually the first credit product you’ll apply for. With a revolving credit limit that replenishes whenever you pay off your full monthly balances, a credit card can be a better payment method for smaller and less necessary costs, such as gifts, clothes, and other consumer goods.
A credit card is also one of the easiest to both build and improve your credit score since you’ll have the option of making more than one payment per billing cycle. In addition, some cards come with perks, like reward points, roadside assistance, and travel insurance. Not to mention you’ll have the option of making minimum payments when you can’t afford full monthly balances, which is not possible with a loan.
Then again, when not handled responsibly, your credit card can also cause you a massive amount of unmanageable consumer debt. And, although minimum payments will spare you from late penalties, the more of your available credit limit you use from month to month, the higher your credit utilization ratio will be, which can have a negative effect on your credit score.
What Loans Canada Recommends
Suffice to say, the effect that any credit product can have on your finances must be carefully considered before you apply. A personal loan in Hamilton, while beneficial in many ways, can also be harmful if you cannot afford all payments, rates, and fees involved. However, it can also be a great tool for improving your credit score, diversifying your credit report, and adding to financial profile (when you manage it properly).
All this said a personal loan is still a significant responsibility to take on. As such, you should not only be prepared financially, you should only use the approved funds to cover expenses that are more or less necessary.
- You or someone else’s education (tuition, books, etc.)
- Vacations or unexpected travel costs
- Payment or consolidation of high-interest debt
- New furniture, appliances, or other large purchases
- Home maintenance, renovations, or additions
- Vehicle maintenance, fuel, or repairs
Want More Personal Loan Information?
If you’re looking to inquire about a personal loan in Hamilton, be sure to reach out to the Loans Canada network. At your request, we can connect you with the best prime and subprime lenders in your area. All you have to do is call us today or check out our website.