How to Choose a Loan
When it comes to choosing the right loan, there are several factors you should take into consideration.
- What do you need the money for? Since you’re looking to apply for a loan you likely have a reason, this will determine the type of loan and what lender you should choose. If you’re looking for a personal loan for a general reason (such as a vacation or to make a purchase), you’ll have more options to choose from then someone looking for a debt consolidation loan.
- What interest rate are you being offered? When comparing the interest rates of multiple lenders, makes sure you consider the APR as well as the monthly rate. This is particularly useful when trying to decide between several lenders that are offering similar options.
- What type of repayment plans are available? The repayment plan that you choose will not only dictate how often you have to make a loan payment but also how quickly you can pay off your loan. Typically, you’ll choose from monthly, weekly, or bi-weekly payments. If you’re looking to save money and pay off your loan quickly, bi-weekly payments are the best option
- Are there any additional fees? Generally speaking, some lenders will have a couple of fees added to the cost of your loan. But, it’s important that you make sure you aren’t being charged any illegal fees or that the cost of the fees is not higher than the legal limit.
- What do consumer reviews say? When it comes to choosing a great lender to work with, reviews from other consumers can provide much-needed insight. Furthermore, if you can’t find any reviews at all, this could be a red flag.
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How to Apply For a Loan Online
Once you’ve decided on the type of loan and lender that best fits your needs and the lender, it’s time to apply. The easiest way to apply for a loan is to apply online.
Loans Canada Loan Application
By applying with Loans Canada, you can get matched with the best loan offer and get your loan faster. We created a short personal loan application system to save you time (and money!) when searching for a personal loan.
See How Much You Qualify For
|Unsecured Personal Loan||More Info||Apply Now|
|Debt Consolidation Loan||More Info||Apply Now|
|Car Repair Loan||More Info||Apply Now|
|Guarantor (Cosignor) Loan||More Info||Apply Now|
|Consumer Proposal Payoff Loan||More Info||Apply Now|
|Credit Rehab Savings Loan||More Info||Apply Now|
|Small Business Loan||More Info||Apply Now|
|Car Loan||More Info||Apply Now|
You can also follow our guide below to learn how online loan applications work.
Step One: Fill out the online application
Visit the website of the lender you want to apply with and navigate to their application. This process should take no more than 1 to 5 minutes. You will be asked to provide personal information, employment information, and financial information.
Step Two: Compile all your required documents
After submission, you should compile any required documents. This could be bank statements, proof of employment or a government-issued I.D. It’s best to compile everything you may need so that when you’re asked to submit additional information, you’ll be prepared and won’t delay your approval.
Step Three: Monitor your email and answer your phone
This step is particularly important for those looking for a quick approval. Once you’ve submitted your application you will need to wait to hear back from the lender. Depending on the lender this could be a call, an email, or even a text message. Monitor these so that you don’t miss any communication from them. It’s important to promptly answer your loan agent and provide them with exactly what they ask for, being helpful will make sure the process goes as smoothly as possible.
Step Four: Wait for approval
Playing the waiting game is never fun, but the good news is that this step shouldn’t take too long. On average you should hear back from a lender within 48 hours. Although it’s important to keep in mind that this does vary from lender to lender. If you’re curious about the status of your loan application, you can always contact the lender.
Step Five: Receive funds
Once approved, you will receive your funds. Depending on the lender, this should take no more than one business day. Most lenders will transfer the money directly to your bank account, but some may provide the option to receive a cheque.
Read More About Applying For a Loan
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- The Best Reason to Give When Applying for a Personal Loan
- Avoid These Personal Loan Application Mistakes
- Don’t Apply for a Loan Before Reading This First
Loan Requirements: Documents and More
While certain lenders may have additional requirements, here are some of the basic documents and eligibility requirements that most lenders will ask for during the loan application process.
- Steady income
- Active chequing account
- Age of majority in your province
- Valid Canadian address
- Canadian citizen (or permanent resident)
- Specific credit score requirements
- Social Insurance Number
- Proof of address
- Valid government-issued I.D.
- Proof of employment
- Bank statements
- Co-signer or collateral
Costs Associated With A Loan
When deciding to apply for a loan, it’s important that you calculate all of the costs associated with it. Certain costs, for example, any unexpected fees can affect your ability to repay the loan or can change the amount you’re able to borrow.
Interest rate. All lenders charge interest, it is the main cost of borrowing. Interest rates vary from lender to lender but in Canada, the maximum rate that can be charged is 60%.
Fees. Depending on the type of loan you apply for there is any number of fees you may need to pay. Some of the most common fees are:
- Administration fee
- Loan origination fee
- Brokerage fee
- Non-sufficient funds fee (NSF)
- Late payment fee
- Early repayment fee
All loans will come with some type of fee, but if you’re concerned about a certain fee or feel as though a fee is too high, make sure you’ve read and understood your loan contract before you sign.
Down payment. A down payment is an initial payment you make when purchasing a large asset like a house or a car. It’s typically a percentage of the purchase price of the asset, therefore the down payment you may need to save up for depends on what you’re purchasing.
Monthly payments. Most loans are repaid in installments spread out over the term of the loan. Typically, you’ll be able to choose from monthly, weekly, or bi-weekly payments. Depending on when you receive your paychecks and your budget, you should choose the option that best works for you. Although, it’s important to note that not all lenders will offer all of these options.
Total repayment cost. While you may be able to afford the monthly payments associated with a loan or the interest rate you were offered seems affordable, you should also take into consideration the full cost of the loan at the end of your term. Most lenders will provide you with the final cost of a loan. It’s always a good idea to ask yourself if the full cost is worth it?
Where Should You Get Your Loan From?
Finding the right lender to work with may seem like a stressful task, but once you understand what your options are, you should have no problem making the choice that best fits your unique needs.
Bank or credit union. Probably the most common choice, a bank or credit union is a good option for those consumers who have good credit. Banks and credit unions typically have stricter approval procedures and require borrowers to meet higher standards.
Private lender. A private lender is an individual or company that lends privately as opposed to through a traditional financial institution. Because private lenders do not have the same restrictive requirements, they are able to work with more borrowers. If you have less than great credit or have struggled financially in the past, a private lender could be a great option for you.
Loan broker. Brokers have relationships with multiple lenders and can help you find the best option and rate. One of the main benefits of working with a broker is that you apply with them and they do all the work for you. This means you’ll save time and get the best options that fit your needs.
Online lender. An online lender works directly with borrowers to get them approved for the loans they need. A consumer will fill out the lender’s online application, which is typically quick and easy to accomplish. Once approved they will receive funds directly deposited into their bank account. Online lenders are able to approve more borrowers because they don’t need to follow the same strict approval procedures as banks and credit unions. An online lender is a good option for someone who has struggled financially, who is currently receiving Employment Insurance, or who has poor credit.
Payday loan lender. If you’re currently thinking about applying for a payday loan, we suggest that you consider all other options first. While a payday loan may seem like a great option (easy application and quick approval), more often than not they can cause serious financial issues.
How to Pay Off Your Loan
Once you’ve received your funds, the next step is to start your repayment plan. Your repayment schedule is set, so you should know what to expect when paying off your loan.
But, it’s important to focus on making sure you can afford to make all your payments as scheduled.
Automatic payments. Most lenders require loan payments to be automatically withdrawn from the borrower’s account. This is a great option as you won’t need to remember to send in your payments and therefore won’t run the risk of missing a payment. But, it’s also important to make sure you always have the funds needed in your account. If your payment bounces, you will be charged a non-sufficient funds fee by your lender and your bank.
Communication. If you know you won’t have the necessary funds in your account one month you should contact your lender before they try to withdrawal the payment. Likely, they will be able to help you out and rescheduled the payment, but if you don’t reach out, they might not be as willing to help you after your payment bounces.
Prepayment. Making all your payments on time will keep you on schedule, but there is always the possibility to pay off your loan earlier than scheduled. Some lenders will allow you to make a large one-time payment to pay down your balance quicker. You may also want to discuss with your lender the possibility of paying off the full balance of your loan, keep in mind that depending on how your interest is being calculated, this may not save you any money.
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Getting approved for a loan, regardless of your credit or financial past is easier than ever. We have more options, more lenders, and more ways to apply. And while these advancements are great, unfortunately, now more than ever we need to be wary of the scams and fraudulent lenders that threaten our financial security.
Upfront Payment Loan Scams
The number one most common loan scam currently plaguing Canadian consumers is the upfront payment or loan insurance scam. An individual pretending to be a legitimate lender or even pretending to work for a well-established lender, calls up an unsuspecting consumer and tells them they have been approved for a loan. But, the one catch is that they require an upfront payment, that acts as loan insurance before the money can be deposited into the consumer’s bank account. Typically, the loan insurance payment needs to be provided via a gift card (Steam, Amazon, Visa, etc.) but also they may ask for direct access to your online banking.
No legitimate lender will ever ask a Canadian consumer for an upfront payment of any kind. This is a scam. If you give this person any form of money, they will take it and you will never hear from them again. It’s also important to note that it is almost impossible to catch this type of scammer and you will likely never get your money back.
Legitimate Lender vs. Scammer
|Requires time to assess eligibility and go over your application||Promises guaranteed approval|
|Asks for bank statements||Asks for access to online banking|
|Does not ask for any form of upfront payment||Asks for upfront payment in the form of loan insurance|
|Provides you with loan offer and contract to go over, answers any questions you have||Bullies you into accepting an offer|
|Has a legitimate business email address||Has a Gmail (for another email provider) email address|
How to Protect Yourself From Loan Scams
- Before you apply for a loan on any site, make sure that the site has all of the following:
- Educational information in the form of blog posts, videos, tools, etc.
- Detailed information about the loans and services they offer
- A physical address
- Look for online reviews for any lender you want to apply with
- Keep track of the lenders you apply with, staying organized will help prevent any confusion if you’re contacted by a company you don’t know
- Do not accept any unsolicited loan offers, even if you were thinking about applying for a loan in the near future
- Don’t provide personal information over the phone that you already provided in the loan application
Learn More About Dealing With Loan Scams
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- PSA: Loan Scam
- How to Avoid Loan Scams
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Frequently Asked Questions
Can you get a loan with bad credit?
Can I apply for a loan with my Canada Child Tax Benefit?
Will applying for a loan hurt my credit score?
Why was my loan application rejected?
Can I pay off my loan early?
What happens if I miss a payment?
What is the difference between a secured and an unsecured loan?
How to tell if a lender is legitimate?
Can I transfer my loan to someone else?
|Accrued Interest||Interest that is earned by an individual, but not yet received. Or, interest that is owed, but not yet paid. Interest is typically earned or payable after a certain period of time, such as a month or a year, which is why it can accrue.|
|Annual Percentage Rate (APR)||The interest rate you pay over a full year in exchange for borrowing. An APR is expressed annually but is typically charged monthly. You can determine the total monthly interest you’ll pay on debt by multiplying the borrowed amount by the APR and then dividing by 12.|
|Assets||Anything that has financial value is considered an asset. In order to reap the benefits of an asset, you must also own it as an individual or business. When it comes to debt, usually only real estate, jewellry, vehicles, and investments are considered assets.|
|Borrower||An individual or entity that takes something (for example money or equipment) with the intention of returning it to the original owner. When the borrower it taking out a loan, there is usually an agreement involved and applicable interest.|
|Cash Advance||A cash withdrawal from a credit card. Cash advances are a very expensive form of financing as the interest rate on the borrowed amount is higher and there is often a flat fee. In addition, interest becomes effective immediately after you withdraw the cash, instead of after the balance due date.|
|Co-Borrower||An individual who shares an obligation of something that was borrowed with one or more people. All co-borrowers listed on an agreement are fully responsible for repaying the obligation.|
|Collateral||Any asset that is used to secure debt. In the event that the borrower defaults on the loan, the lender has the right to seize the asset and sell it to cover the owed amount. Collateral is also commonly referred to as security.|
|Cosigner||An individual who agrees to make your loan payments and otherwise be responsible for your debt in the event that you default on the loan. Using a cosigner is a popular option for individuals who have trouble securing debt on their own.|
|Cost of Borrowing||All of the costs a borrower incurs when borrowing an asset or money. Examples of borrowing costs include legal fees, interest, loan origination fees and penalties.|
|Debtor||An individual or entity that owes a sum of money to a creditor.|
|Delinquency||Failure to pay the minimum payment on a loan or account on or before the agreed-upon payment date. Delinquency is typically categorized in 30, 60, 90 or 120 days since lenders typically have monthly payment cycles. Delinquent accounts may eventually turn into defaulted accounts.|
|Dependent||An individual who relies on another individual for financial support. Usually, this refers to a family member, common-law partner or spouse who is unable to financially support themselves.|
|Equity||The market value of an asset you own less the amount still owed (including any additional fees to sell or repay debts) on the loan used to purchase the asset if any. Equity increases when you pay down the debt as well as when the value of the asset increases. Equity can be calculated at any point in time and is also referred to as lendable value or net value.|
|Installments||A payment schedule that breaks up an owed amount of money into several equal amounts, otherwise known as installments, which are paid over an agreed period of time.|
|Loan||An amount of money that is borrowed by one entity from another with the expectation that the amount will be paid back. Interest is typically applied on the owed amount.|
|Loan-to-Value Ratio (LTV)||The ratio of what amount was borrowed to purchase an asset in relation to the market value of that asset. The formula would be: the total amount borrowed for the purchase divided by the total selling price of the asset. The borrowed amount can differ from the selling price if the individual makes a down payment, for example. In general, the lower the LTV, the more favourable the terms of the financing will be.|
|Payday Loans||A short term, small loan that a borrower promises to repay on their next pay day. Payday loans are known to be an expensive and risky form of financing that makes it challenging for the borrower to repay and manage.|
|Payment Period||The period of time over which a borrower is obligated to make a payment. Payment periods could be weekly, bi-weekly or monthly, sometimes even longer.|
|Prime Rate||The prime rate advertised by a lender is typically based on the Bank of Canada’s interest rate that is set each night, which may change at any time.|
|Principal Balance||The total remaining balance of a loan, without considering interest and other fees.|
|Secured Loan||A loan that is secured by an asset known as collateral or security. In the event that the borrower defaults on the loan, the lender has the right to seize the asset securing the loan and sell it to repay the owed amount. This type of loan bears less risk for the lender, but more risk for the borrower.|
|Unsecured Loan||A loan that is not secured by an asset known as collateral or security. In the event that the borrower defaults on the loan, the lender will not have the opportunity to seize the collateral or security to repay the owed amount. This type of loan bears more risk for the lender, but less risk for the borrower.|