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📅 Last Updated: August 26, 2022 ✏️ Written By Bryan Daly 🕵️ Fact-Checked by Caitlin Wood
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When faced with our regular expenses or financial emergencies having a bit of extra cash can be a huge problem solver or, in some cases, a welcome gift. This is particularly true in the city of Toronto, where the cost of living can be high. That’s just one reason why an installment loan can be extremely useful.
Want to learn more about loans in Toronto? Check this out.
What is an Installment Loan and What Should I Use It For?
Traditionally, an installment loan is a lump sum of money that’s deposited directly into your bank account soon after your application has been approved. Beforehand, you and your chosen lender in Toronto will come up with a payment plan that works for your finances and involves you paying the loan back in increments, otherwise known as “installments”. These installments will also include an interest rate, which the lender charges for the use of their services. Make sure to ask your lender how much your loan will cost overall, including in this rate, plus any additional fees, then factor those numbers into your budget to make sure you can afford everything.
Click here to see how lenders arrive at interest rates.
Paying back your full installment loan balance may take several months to several years, depending on the amount you’ve requested and what your payment plan looks like. When it’s paid off, you’re free to apply for a second loan or move on.
What Loan Canada Recommends…
As far as recommended uses for your installment loan, as we mentioned, your funds should show up as cash in your bank account. Therefore, you can use your loan for pretty much any expense in Toronto that comes your way. Some of our recommended uses include, but certainly, aren’t limited to:
- Covering any financial emergencies costs that arise
- Driving in Toronto can be a nightmare. With a installment loan you can cover a car accident, necessary repair, or another vehicle-related cost
- Education in Toronto is expensive. Paying for your educational costs with an installment loan can help.
- Financing new furniture, appliances, or other large purchases
- Building or fixing your credit (by making timely and complete payments)
- Dealing with any outstanding debts you might have
Using an Installment Loan For Debt Consolidation
That brings us to our next recommendation, using your Toronto installment loan to rid yourself of any outstanding consumer debt you might be carrying.
How Does a Debt Consolidation Loan Work?
Technically, a debt consolidation loan works the same way as a regular installment loan. You would apply for a specific loan amount and would pay it back over time through installments with interest. However, in this case, you would have to inform your lender in Toronto that you’re using the loan to pay off certain debts, the overall goal is to eliminate them in one swift motion. This would leave you with just one monthly payment to keep track of, rather than many spread across different sources, which might have been the cause of your outstanding debts in the first place.
Make sure to read this before you apply for any type of loan.
What You Need to Know About Debt Consolidation Loans
Now, before you apply for a debt consolidation loan in Toronto, there are a few things to watch out for. While the same can often be said about any financial product, installment loans included, debt consolidation loans require a more strict application and approval process. Be sure to ask your lender in Toronto about their particular procedures, costs, and policies when it comes to debt consolidation loans. Nevertheless, they are a good option for those who have a lot of high-interest debt on their plate.
Here are a few things you should watch out for:
- Debt consolidation loans can be harder to qualify for than traditional loans
- Eligible borrowers often need decent credit and a reasonable income
- Borrowers in Toronto must also have a maximum debt level of 40% of their annual income
- Having a cosigner and/or collateral will make you a much stronger candidate
- Only unsecured (non-collateral) debts, such as credit card bills, will qualify
- Secured (collateralized) debts, such as mortgages and car loans, do not qualify
Here’s what to do when your debt consolidation loan application gets denied.
Is Bad Credit a Problem For Qualification in Toronto?
In Canada, credit scores range between 300-900 and are often used as a way for lenders to judge your creditworthiness. When you have “bad credit”, it means your credit score has fallen below the 560 mark. This can make it harder to qualify for loans and other credit products, as it signifies to your potential lender in Toronto that you’ve had trouble keeping up with your payments in the past. Unfortunately, bad credit can also make your interest rate higher, since your lender considers you more of a risky investment.
For more information about bad credit loans in Toronto, read this.
Generally speaking, a credit score of 650 or higher will give you the best chances of approval and lowest interest rates possible, particularly when applying with prime lenders, such as banks, where approval standards are more strict. That being said, depending on how much you’re applying for, you can still get approved for an installment loan with bad credit.
Here’s what you can do:
- Apply with a private, alternative, or bad credit lender in Toronto
- Bring your bank statements, proof of income, employment record, and other relevant financial documents when you apply
- Only apply for a loan amount that you can prove you’ll be able to pay back
- Factor in your potentially higher interest rate and additional fees
- If necessary, offer the help of a cosigner or collateral as added security
- If approved, you can use your bad credit installment loan to improve your credit score, which should help you secure more affordable interest rates in the future
Check out this infographic to learn how credit scores are calculated.
Additional Precautions
If you’re planning to find a cosigner or offer collateral, be very careful, as there are certain risks involved when you take either path:
- Your cosigner needs to be someone you trust, who as good credit and financial strength. By cosigning, they’re agreeing to take over your loan in the event that you can no longer make payments, which can cause them financial strain, possibly even debt problems. Make sure they’re well aware of this fact before you apply together.
- Your collateral is a valuable asset that you’re offering, such as your house or car, in order to secure both the loan and a better interest rate. Your asset may be at risk if you default and miss too many payments, as your lender temporarily retains ownership of it until your loan is paid in full. If they feel you’re not going to pay them back, they may sell your asset as partial payment for their loss.
Can I Get an Installment Loan Without a Credit Check in Toronto?
While we’re on the subject of bad credit, you might be wondering if there’s a way to get an installment loan where no credit check is involved, which is a common worry when:
- You have a terrible credit score of 500 or lower
- You don’t have a cosigner or any collateral to offer (or don’t wish to offer them)
- You want to avoid further credit damage through hard inquiries (which cause your score to drop by a few points each time).
- You don’t want to look irresponsible (hard inquiries stay on your credit report for several years. The more you have, the more irresponsible you’ll look).
Click here to find out how long information stays on your credit report.
Your Options
In Toronto, most prime and sometimes even subprime lenders will use your credit score as a prominent deciding factor during the application process, but there are still ways you can get an installment loan with no credit check, including:
- Doing research and finding a lender in Toronto that doesn’t check credit – Be careful when you apply with one of these organizations. They may charge you higher interest rates than traditional lenders in Toronto. They may also be a fake company trying to scam you by using your need for hassle-free cash against you.
- Getting a payday loan – This is not recommended, because payday loans are way more expensive than any normal installment loan (very high rates) and payment dates are only 2 weeks following approval. This can cause you serious financial problems. However, if you’re desperate for fast cash with no credit check, a payday loan might be a viable last resort.
- Get a guarantor loan – A far safer option than either of the above options, getting a guarantor installment loan may be much better for your finances. This does involve you finding a guarantor with good credit to cosign your application and agree to take over the loan if you should ever default. However, your own credit will not be a factor. The lender will instead use your guarantor’s credit to decide whether you’re eligible.
For more information about guarantor loans, look here.
Looking For an Affordable Installment Loan?
If you’ve decided that an installment loan in Toronto is the right choice for your financial situation, check out Loans Canada. We’re ready and willing to set you up with the best lenders in Toronto. Contact us today or apply below!
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