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Applying for a loan might seem like an intimidating process. After all, you’re asking someone to lend you money, which you’ll be required to pay back by a certain date. 

But the process doesn’t have to be overly complicated. Here, we’ll simplify it for you. 

How To Apply For A Loan

Whether you’re looking to apply for a personal loan, line of credit, car loan or payday loan, here are some steps you should follow:

Step 1. Find Out How Much You Need 

Before you start filling out your loan application, do some number crunching to determine exactly how much you need to borrow. You want to make sure you take out a loan that’s enough to cover your needs, but you also don’t want to take out more than required. After all, you’ll need to pay back your loan, and borrowing more than necessary just means more to pay back.

Personal loan amounts usually range from $1,000 to as much as $50,000, depending on the lender and your financial situation. Be sure to evaluate your financial situation before applying as well. Check your credit score, make sure your other debt payments are up-to-date and know how much income you have left after all your monthly financial obligations. 

Step 2. Compare Lenders

Now that you understand your financial situation and know how much you need, you can compare lenders based on that information. You can also check which lenders you’re eligible for a loan with by checking if you meet their minimum requirements.

To find the lowest rates on a loan, shopping around for a lender and comparing what each has to offer is a must. You can use loan aggregator tools available online to help you refine your search and save time. 

Simply input certain pieces of information, such as your income, debt, credit score, and loan amount required, and the loan comparison platform will populate a variety of loan offers based on your financial and credit profile. 

Taking this step will give you a clear indication of the loans you can qualify for, including the amount you can borrow, your interest rate, and the loan terms. You can then get pre-qualified for a loan, which may require that you submit additional information and documentation. 

Step 3. Gather Documents And Apply

Once you’ve decided on a lender and a specific loan, you’ll need to complete the lender’s loan application and supply all required documents. Most lenders have an easy online application that you can fill out at home, though some lenders may require an in-person visit. 

The documents required when applying for a loan can vary based on the type of loan you’re applying for and the lender. Here are some common documents you may need to provide:

Documentation Required For Different Loan Types

Loan TypeTypical Required Documents
Personal Loan- Name, date of birth, contact information
- 1 or 2 government-issued IDs (1 photo)
- Social Insurance Number (SIN)
- Proof of employment (income, employers name, job title)
- Loan purpose
- 3 months' worth of bank statements
- Bank account details (for direct deposit and withdrawal of payments)
Payday Loan- Name, date of birth, contact information
- 1 or 2 government-issued IDs (1 photo)
- Proof of income (bank statements, paystub, benefits information)
- Bank account details (for direct deposit and withdrawal of payments)
Car Loan- Name, date of birth, contact information
- Driver’s license
- Social Insurance Number (SIN)
- Proof of employment (income, employers name, job title)
- 3 months' worth of bank statements
- Bank account details (for direct deposit and withdrawal of payments)
- Proof of insurance
- Vehicle identification number
Vehicle Title Loan- Name, date of birth, contact information
- 1 or 2 government-issued IDs (1 photo)
- Proof of employment (income, employer's name, job title)
- 3 months' worth of bank statements
- Bank account details (for direct deposit and withdrawal of payments)
- Car title
- Vehicle identification number
- Vehicle details (make, model, age, etc.)
Home Equity Loan- Name, date of birth, contact information
- 1 or 2 government-issued IDs (1 photo)
- Social Insurance Number (SIN)
- Proof of employment (income, employers name, job title)
- Bank account details (for direct deposit and withdrawal of payments)
- 3 months' worth of bank statements
- Property’s deed
- Recent mortgage statements
- Most recent property tax bill

Step 4. Get Funded

Depending on the lender, you can get approved for your loan in as little as a few hours, which is often the case with online lenders. If you’re applying for a loan with a traditional bank, however, you could be waiting as long as a few days to a few weeks for approval. 

Once approved, the borrowed funds will be deposited into your bank account. Otherwise, you’ll get your money in the form of a cheque or via e-transfer. Then, you’ll need to start making repayments within the next 30 days. 

Payments will be made based on an agreed-upon schedule (ie. monthly, bi-weekly, etc) and continue until you’ve repaid the full loan amount, plus interest and associated fees. 

Requirements To Apply For A Loan 

Lenders have various requirements that borrowers must meet, though the criteria may vary from one lender to another. That said, lenders typically will look at the following factors to determine whether or not to approve your loan application: 

Income Level 

Lenders have specific minimum income requirements that borrowers must meet. You need to earn enough money to cover your loan payments, which is why your lender will want to verify your income. 

To prove your income, you’ll need to provide your lender with documents such as pay stubs, bank statements, tax returns, and a letter of employment. 

Debt-To-Income Ratio (DTI)

Your debt-to-income ratio (DTI) is a measure of your monthly debt relative to your gross monthly income. In other words, your DTI ratio shows how much of your monthly income goes toward covering your monthly debts, such as your mortgage, rent, car loan, student loan, or credit card bills. Your lender will look at your DTI ratio to assess your borrowing risk.

Generally speaking, lenders prefer to work with borrowers who have a DTI ratio of no more than 42%. Any higher than this would make you too much of a risk for the lender. That’s because a higher portion of your income is dedicated to paying your current debts, leaving less available to cover any additional loan payments.  

Credit Score Requirements

Your credit score is a common factor used by lenders when assessing your loan application. Lenders generally prefer to work with those with higher credit scores as it shows the borrower has been making timely payments on their debts. However, there are lenders who work with borrowers with poor or no credit.  

Regardless of the type of lender you work with, you’d be better off applying for a loan with a higher credit score as it generally leads to lower interest rates and better terms. 

Additional Requirements To Apply For A Car Loan 

If you need a loan to buy a car, the lender will need other information specific to vehicle financing, in addition to the above-mentioned criteria. These include the following:

  • Driver’s License – You need to have a valid driver’s license before you can buy a car and apply for a car loan. 
  • Proof of Insurance – Most lenders require proof of full coverage auto insurance at the time of purchase, which must remain in effect for the entire financing term.
  • Value Of The Car – Lenders want to know what the car is worth when you apply for a car loan. More specifically, they’re looking at the value of the vehicle relative to how much you borrow to make sure they’re not taking on unnecessary risk.

Additional Requirements For Mortgages 

Applying for a mortgage is one of the most complicated forms of financing. There are many steps to applying for a mortgage so it’s best to work with your lender and real estate agent throughout the process. 

To help you through the application process, here are some extra factors that come into play when applying for a mortgage:

Gross Debt Service (GDS) and Total Debt Service (TDS) 

Mortgage specialists use two specific ratios when determining a borrower’s ability to afford a mortgage: 

  • Gross Debt Service (GDS). Your GDS ratio represents your monthly household income relative to your housing costs. More specifically, it measures how much of your income is used to pay all your housing expenses. It should be no more than 39%.
  • Total Debt Service (TDS). Your TDS ratio represents the share of your monthly household income that goes toward paying your housing costs and all other debts. It should not be any more than 44%.

Mortgage Stress Test 

Not only will you have to get approved at today’s interest rate, but you’ll also need to prove that you can afford your mortgage if rates increase in the near future. That’s where the mortgage stress test comes into the picture. 

To pass this test, you’ll need to qualify at either the benchmark rate of 5.25% or your contract rate plus 2%, whichever of the two is higher. The test is meant to protect borrowers from taking out mortgages they can’t afford. This will reduce the odds of defaulting on the mortgage, especially if rates rise at some point.

Where Can You Apply For A Loan?

You have some options when seeking a lender for a loan. The main types of lenders in Canada include the following:


The first place that many Canadians look to for a loan is the big banks. These traditional lenders are federally regulated and tend to offer the lowest interest rates and best terms compared to other lenders. 

But borrowers must meet strict borrowing criteria in order to get approved and take advantage of these perks. If you are considering applying for a loan with a bank, you’ll need a good to excellent credit score and a strong income. 

Credit Unions 

Credit unions are member-owned financial institutions that offer loans to members. Since profits earned go back to members, credit unions are able to charge lower rates on loans compared to banks. 

If you’re a member, you can take advantage of better rates and terms to make your loan more affordable. However, you must meet specific requirements to become a member.

Alternative Lenders 

If you are unable to meet the requirements that banks and credit unions demand, alternative lenders are available to help. These lenders offer much more flexible criteria, which makes their loans easier to qualify for. Even if you have bad credit, you may still get approved for a loan. 

However, you’ll have to pay higher rates compared to what traditional lenders charge.  

Final Thoughts

Before applying for a loan, make sure you’ve done your due diligence. Scope out the lenders and their loan products, determine how much you need to borrow, and find out what qualifications you must meet. Then, make sure you complete the lender’s application in full, and supply all necessary documents. As long as you’re adequately prepared, you should have little issue with the loan application process. 

FAQs On Applying For Loans

What happens if I can’t repay back my personal loan on time?

If you miss your loan payments, your lender can charge you late fees for each day your payment is overdue. If you default on a secured loan, your lender can repossess the collateral, such as your car or house.  The lender may also report your missed loan payments to the credit bureaus, which will negatively impact your credit score. You could also be taken to court by your lender to pay the outstanding debt, plus applicable interest and fees. If you won’t be able to make your loan payments, speak with your lender right away.

What happens if your loan application is rejected?

If you’re turned down for a loan, speak with the lender to find out why. That way, you can identify the problem and take steps to fix it. This will help improve your chances of getting approved the next time you apply for a loan.  

Should I check my credit before applying for a loan?

Yes, you should know what your credit score is before you apply for a loan. That way, you’ll have a good idea of what your chances of loan approval are.  Checking your credit score will also give you a chance to determine if any improvements need to be made. If so, you can take steps to improve your credit score before applying for a loan. 
You can check your credit score for free using Loans Canada’s CompareHub.
Lisa Rennie avatar on Loans Canada
Lisa Rennie

Lisa has been working as a personal finance writer for more than a decade, creating unique content that helps to educate Canadian consumers in the realms of real estate, mortgages, investing and financial health. For years, she held her real estate license in Toronto, Ontario before giving it up to pursue writing within this realm and related niches. Lisa is very serious about smart money management and helping others do the same.

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