Your interest rate is the most significant factor when calculating the cost of a personal loan. Since a low-interest rate can help you save hundreds, even thousands of dollars over the life of your loan, it’s important to find the best rate possible. Read this to learn about how and where you can locate the best personal loan interest rates in Canada.
Best Personal Loan Interest Rates Canada
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What Personal Loan Interest Rate Do You Qualify For?
While Canadian personal loan interest rates normally range from 2% to 47% APR, the rate you qualify for can vary according to several factors, including but not limited to:
- Who Your Lender Is – Every lender has different requirements and interest rates. Banks and credit unions generally offer more competitive rates than private lenders.
- How Healthy Your Credit Is – Generally, lenders like to see a credit score of 660 or above as higher credit scores mean you’re more likely to pay your bills on time. If you want to know what your credit score is, check it for free on CompareHub.
- Your Loan Amount and Payment Term – Larger loans may feature longer terms and lower rates. But longer terms generally mean you could pay more interest overall.
- Your Current Debts – If you have lots of debt, your lender might doubt your ability to repay your loan on time, which can lead to higher interest rates.
- Your Collateral – You can reduce the risk for your lender by offering them an asset as collateral, like a home or vehicle (to protect them if you default on your loan). This can not only help you qualify but secure a lower interest rate.
- The Type of Rate – Variable rates can start low and rise with Canada’s prime rate. Fixed rates may be higher but won’t change during your loan term. Private lenders usually charge fixed rates and financial institutions will offer both types.
Borrow Up To $50,000
How To Get The Best Personal Loan Interest Rate In Canada
If you plan to apply for a personal loan in Canada, always start with a bit of research. For instance, here are some of the things you can do to find the best personal loan interest rate in Canada:
- Apply For A Secured Loan – Depending on your lender, you may be able to offer an asset as collateral in exchange for a lower interest rate. An asset will give your lender something to sell, should you default on your payments.
- Get A Cosigner – Like collateral, getting someone to cosign your personal loan helps reassure the lender that your payments will be made on time. If you can’t afford them or default, your cosigner becomes responsible for your payments.
- Go To Your Bank – Banks and credit unions tend to charge competitive interest rates, which can be lower than those of private lenders. Unfortunately, you may need excellent credit and a steady income to qualify for the best personal loan interest rates.
- Compare Lenders & Quotes – Make sure your lender is a legitimate business with a good reputation and affordable loan options. They should also be able to give you a free quote that shows your approximate loan amount and interest rate.
- Improve Your Credit & Finances – Overall, the best way to earn a low personal loan interest rate is by building strong credit and stable finances. Plus, you may qualify with banks and credit unions, which can be safer.
Can Your Term Length Affect Your Personal Loan Interest Rate?
As mentioned, longer personal loan terms generally come with lower rates but lead to more interest overall, because you’re being charged an annual rate (APR) for multiple months or years. The opposite is true for shorter terms, which can result in higher interest rates but less interest paid during your loan plan.
Here’s an example to show you the effect of long versus short personal loan terms:
- You need $35,000 to renovate your home
- You compare two loans; one with a 5-year term and one with a 7-year term.
- Both personal loans feature a 3% ($1,050) origination fee (added to total loan amount being financed)
| Personal Loan #1 | Personal Loan #2 | |
| Loan Amount Required | $35,000 | $35,000 |
| Fee | 3% | 3% |
| Total Borrowed | $36,050 | $36,050 |
| Payment Term | 5 years (60 months) | 7 years (84 months) |
| Interest Rate | 7.99% | 5.99% |
| Monthly Payment | $730.79 | $526.47 |
| Total Interest Paid | $7 797.49 | $8 173.11 |
| Total Cost | $43,847.49 | $44,223.11 |
How Is Your Personal Loan Cost Affected By Your Credit Score?
Remember, your credit score can change your interest rate and have a major impact on the final cost of your personal loan. Here’s how it tends to work with Canadian lenders:
- Lower Scores – If your credit score is in the 300 – 659 range (bad to fair), some lenders will charge you higher interest rates because they consider you a riskier client.
- Higher Scores – If your score is within the 660 – 900 range (good to excellent), it should be much easier to qualify for a lower interest rate. This is particularly true with banks or credit unions, which may only accept clients who have good credit.
Cost Of A Loan For Different Credit Ranges
In this example, we used a $5,000 loan paid monthly with a two-year term to illustrate how credit scores can affect the total cost.
| Estimated Interest Rate Based On Credit Score | Total Interest Based On Lowest Estimated Rate | Total Interest Based On Highest Estimated Rate | |
| Poor Credit Score (300 - 559) | 18% to 46.96% | $11,981.78 | $15,601.48 |
| Fair Credit Score (560 - 659) | 15% to 35% | $11,636.80 | $14,044.47 |
| Good Credit Score (660 - 724) | 5% to 29.99% | $10,529.13 | $13,417.84 |
| Very Good Score (725 - 759) | 3% to 17% | $10,315.49 | $11,866.14 |
| Excellent Credit Score (760 - 900) | 1.5% to 10% | $10,157.00 | $11,074.78 |
How To Calculate Your Personal Loan Interest Costs
Since every lender has a different way of assigning interest rates, it’ll be a lot easier to calculate your personal loan interest costs with our online Loan Calculator. To compare loans, just enter your credit score range, interest rate, loan amount and term length. The Loans Calculator will then give you several pieces of key information, including your:
- Number of Payments
- Monthly Payment
- Total Interest
- Total Payment
Don’t Forget About Your Fees
Before you apply for a personal loan in Canada, keep in mind that your interest rate isn’t the only cost to consider. Some lenders also charge certain fees and penalties, such as:
- Non-Sufficient Funds (NSF) Fee – Most lenders will withdraw personal loan payments directly from your bank account. A penalty of around $25 – $50 may apply if you don’t have a sufficient account balance when your payment is due.
- Loan Origination Fee – Although it’s rare for personal loans, some lenders also charge a loan origination fee to process your funds. This fee usually costs about 1% – 5% of your loan and might be deducted or added from your loan amount.
- Late Fee – If your personal loan payment is late, a penalty of about $15 – $40 or 5% of your payment could be added to your total debt balance, on top of any NSF fees. Those penalties will probably increase the later your payment is.
- Prepayment Fee – While it can help you save on interest, deviating from your original loan payment plan may result in a penalty too. This includes making early or lump-sum payments. However, this is another rare fee for personal loans.
- Protection Plan Fee – Some personal loans give you the option of buying extra insurance. In exchange for a recurring or one-time fee, this plan covers your debt if death, illness or job loss prevents you from making the loan payments on time.
Additional Reading
Personal Loan Interest Rates Canada FAQs
Do loan terms affect personal loan interest rates?
What’s the difference between a personal loan interest rate and APR?
Can I qualify for a low interest rate with bad credit?
Looking For The Best Personal Loan Interest Rates in Your Area?
In that case, Loans Canada could be the perfect referral service for you. We can help find legitimate lenders and flexible personal conditions in your province or territory. Don’t forget that a personal loan is a serious financial responsibility, no matter how much cash you borrow. So, it’s important to do research and speak with an expert before you apply.
