Applying for Long Term Loans in Canada

Written by Caitlin Wood

Updated March 13, 2020

Applying for Long Term Loans in Canada

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Loan Long Term Loan Mortgage

There are many kinds of loans available to all Canadians who are currently looking to get the financing they need. From short term loans to cover the cost of an unexpected expense to larger, to longer-term loans, there is an option for everyone. There is a plethora of information out there on how to apply for and get approved for a short-term loan for credit-constrained consumers, but we often get a lot of questions concerning long term loans. How to apply and get approved for one, which types of lenders provide them, what the interest rates are, and finally what type of requirements there are. So, we’re going to delve deeper into the world of long term loans for those consumers with bad credit.

What is a Long-Term Loan?

Typically, it takes anywhere from 5 to 35 years to pay off a long-term loan, depending on what type of loan you have. Anything under 5 years is normally considered a short-term loan and 35 years is the maximum time it can take you to pay off a mortgage (often considered the ultimate long-term loan) in Canada. Although this is of course only a general break down of loan terms, you may consider a 5-year loan a short-term loan.

One of the main differences between a short-term loan and a long-term loan is that a long-term loan is typically used to cover the cost of a planned expense. Something that you want or need that you’ve created a budget and plan for and know that you’ll be able to afford the cost spread out over a specific period of time. They are also more often than not, used to buy something expensive, for example, a house.

Learn how to compare lenders by reading this article.

Different Types of Long Term Loans

Typically, loans, whether they are long term or short term, are divided into two different categories, secured and unsecured.

Secured

Secured loans are backed by some form of collateral, something that has value. It’s safe to say that the two most common forms of secured loans are mortgages and car loans. With these two types of loans, it’s the item that you’re purchasing that acts as collateral. You can also take out a loan and secure it against something that you already own, for example, a vehicle you’ve paid off in full.

When a loan is secured you are often more likely to receive a larger sum of money, although this is not always the case. Collateral takes some of the financial risk off of the lender. If you ever default on your loan, your lender may seize your collateral in order to recoup some or all of their losses.

Unsecured

An unsecured loan is the opposite of a secured loan in that it does not require any form a collateral. With an unsecured loan, you’re applying for a loan that is not secured by an asset. This means that you’ll be more likely to be approved based solely on your financial standing and or your ability to repay the loan.

Good Credit Loans

If you have good credit, chances are you’ll have a significantly easier time getting approved for the loan and credit products you want (for more on this topic, click here). Although, it’s important to note that this isn’t the case 100% of the time. Sometimes consumers, for a variety of reasons, become overly concerned with having a perfect credit score. They take out loans and rack up credit card debt in pursuit of the infamous perfect credit score. But in reality, too many loans and maxed out credit cards will hinder your ability to get approved for a long-term loan and in the long run, put your credit score at risk.

Bad Credit Loans

Not too long ago, having bad credit meant that you probably weren’t going to be able to find a reputable lender willing to work with you. Now, while bad credit still isn’t a desirable thing to have, there are a plethora of lenders and creditors who can and will provide you with the loans and credit products you want.

Buying a house with bad credit? Check out this article.

No Credit Check Long-Term Loans

So, are there long-term loans for those consumers with bad credit who don’t want to have their credit checked? The answer to that question is both yes and no.

No, because almost all long-term loans are also large loans, a lender is taking on significantly more risk than they do when they provide smaller short-term loans. This heightened risk level means that a lender will want to do anything and everything they can to verify a potential borrower’s creditworthiness. This is why you’ll have a difficult time finding a lender who can provide you with a long-term loan without a credit check.

Yes, because there are a few stepping stones that can help you along your journey to get approved for a long-term loan in Canada.

If the long-term loan that you’re interested in is a mortgage, there is a great option available to you called a bridge loan. A bridge loan is a short-term lending solution for credit-constrained consumers who want to purchase a home in the near future.

Take a look at our bridge loan infographic for even more information. 

How Does a Bridge Loan Work?

A bridge loan is like a bridge, as its name suggests because it bridges the gap between getting rejected and being approved for the long-term loan you want.

Step 1. Apply for a Mortgage from a Private Lender

This is your first step onto the bridge. Private lenders are more lenient and often do not require credit checks, but if they do, you’ll be less likely to get rejected because you have a poor credit score. Once you’re approved for a bridge loan from a private lender, you’ll have to work hard to make every single one of your payments on time. A bridge loan typically lasts between 6 months to 2 years, during which your on-time payments will help you improve your credit so that you can move on to the next step.

Step 2: Transfer Mortgage to B-Lender

Once you’re able to improve your credit with your bridge loan, you can refinance it with a B-lender. You should also be able to qualify for a more affordable interest rate. With this loan, your goal is exactly the same as with the previous one, make all your payments on time and improve your credit score so you can finally get approved for the long-term loan you want.

Step 3: Gain Access to a Long-Term Loan from a Bank or A-Lender

The final stage of a bridge loan is to refinance the mortgage you have with a B-lender, with a bank or A-Lender instead. By this point, you should have improved your credit enough to be eligible to do so at an even lower interest rate.

Improving Your Credit to Gain Access to a Long-Term Loan

Credit is the new “it” word of the financial world. No matter what newspaper or personal finance website you read, you’ll definitely see at least one mention of credit. Everyone wants to know what their credit score is, what information is contained in their credit report, and how to improve it. And we’re couldn’t be more supportive of this. Taking interest in your credit score means you’re ready to take back control of your finances and take action to create the financial future you deserve.

Check Your Credit Report and Score

These days, there are a plethora of websites that can provide you with your credit score for free and every Canadian has the right to question one free copy of their credit report from each of the two credit report bureaus, Equifax and TransUnion. Get out there and check your credit, it’s free so there no excuses anymore.

Pay Down Debt

If you’re carrying around too much debt not only will your credit score be negatively affected but your chances of getting approved for the mortgage or long-term loan you want will also be low. Create a plan, put a budget into action, do whatever it takes to pay down your debt.

Learn how to tackle your debt once and for all. 

Benefits of a Long-Term Loan

As with any type of financial product, depending on what your needs are, certain products will benefit you more than others. Typically, long term loans are provided for a very specific reason, to purchase something like a house or a vehicle, something that most consumer simply don’t have the cash available to purchase outright. With that said, there are definitely some benefits to taking out a long-term loan.

Smaller More Affordable Payments

When a loan comes with a longer term, it means you’ll be paying it off over a longer period of time so the payments will be smaller. Smaller payments mean you’ll have more of your income at your disposable on a monthly basis. This is, of course, important for those who value having more money available to them to cover both general costs and to make sure they have enough money set aside in case of an emergency.

More Money

Typically, longer term loans are also larger in size.  So, while you may want to be debt free within a shorter period if you’re also looking for a large loan, you need to get used to the idea of accepting a longer term.

More Options

A long-term loan provides you with more options to purchase the things you need. On top of that, it allows you to take advantage of things that you might not be to take advantage of without a loan, for example, a house in the perfect location or a business opportunity.

Choosing the Right Lender 

For anyone looking to apply for any type of loan, our number one piece of advice is to choose the right lender to work with. The right lender is different for everyone; therefore, you need to decide what you want from a lender and then settle for nothing less. Be specific, be focused, and choose someone you trust.