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In this day and age, plenty of financial services are offered online, including personal loans. This is particularly convenient for those consumers with busy lives and schedules. Long gone are the days of having to apply for a loan at the local branch of your bank and the multiple meetings that followed. If you’re looking to apply for a loan, there are countless online lenders available to help you get the financing you need.
Decide What Type of Loan You Want
There are many different type and sizes of loans for Canadian credit users. Before you apply to any online loan service, it’s best to be prepared and know exactly what kind of loan is required for your particular financial situation. Here are just a few loan types that you can find online:
- Conventional, collateral, and high-ratio mortgages
- Second mortgages (home equity loans and HELOCs)
- Personal loans
- Short-term loans
- Car or other vehicle loans (boat loans, truck loans, tractor loans, etc.)
- Vehicle title loans
Read this to learn the differences between a conventional and collateral mortgage.
Calculate How Much You Want and What You Can Afford
Another very important part of applying for any loan, whether online or not, is deciding how much money you want. It’s essential to only apply for a loan that you can 100% afford. If you can’t afford your payments and start falling behind, you’ll be racking up penalties, heightened interest rates, and a ton of unmanageable debt.
Factors to Consider When it Comes to the Cost of Your Online Loan:
- Your gross monthly/yearly income
- Your employment status
- What you can afford if you were to lose your job or be unable to work
- Financial emergencies or unexpected costs
- Bank account balances
- The health of your credit
- Your other outstanding debts
- Your other necessary regular expenses and overall budget
- If you want to offer collateral or a cosigner
- What your lender charges in terms of payments, interest, and administrative fees
Do you know what the true cost of borrowing is? Take a look at this infographic.
Choose the Right Lender
One problem with searching for loans online is the potential for you to apply with a lender who offers loans that are not healthy for your financial situation. Even worse, they may be a fake organization posing as a real lender. Whereas some lenders have a physical location you can visit if you want to make inquiries or if you’re dissatisfied with your loan, the legitimacy of online lenders is harder to confirm.
Trying to compare lenders in Canada? Look at this first.
So, before you apply for any financial service online it’s essential to do your research. Elements of your personal and financial information will be required during the application process, since your lender needs to confirm your ability to pay back your loan. This is where some borrowers hit a snag, especially when they are desperate for a loan to deal with a financial situation they’re going through. Their desperation or lack of knowledge on the subject can leave them vulnerable to predatory lenders, identity theft, fraud, and other sorts of scams. This is why you must be extremely careful when applying online. With the right information in their hands, horrible damage can be done to your finances.
Warning Signs to Watch Out For:
There are a few telltale signs that can help you identify a loan scam, such as:
They ask for an advanced payment – One of the most common scam signals is when the “lender” asks for a deposit before approving your loan. They may call it “loan insurance” and claim that it’s a standard policy because they’re supposedly taking a risk by lending to you. While that is true in a sense, no legitimate lender in Canada will ever ask for payment of any kind before your loan has been deposited into your bank account. In fact, it is illegal to do so.
They charge too much in interest – In reality, the only thing your lender should charge for their services is an interest rate (cost of borrowing) and administrative fees. Every province also has a specific limit for how much a lender is legally allowed to charge. Check with your financial advisor to see what that limit is in your province.
They don’t have a solid reputation – All legal lenders must be licensed by the federal and provincial governments. They should also have a reputation that stems from years of good treatment toward their clients. Make sure to look up your lender in the Better Business Bureau database and check to see that they have many customer reviews. If they don’t have any real presence or their reviews are clearly fake, avoid them.
They don’t give you the right information – Whatever type of loan you apply for, a real lender is supposed to have the proper details on-hand, especially when it concerns the general costs. Your own lender should outline every single detail about your payment amounts, payment dates, interest rate, and all associated fees. If they refuse to tell you this or they’re avoiding your other questions, something is definitely not right.
Be careful not to fall victim to these other financial scams in Canada.
What to Do if You Fall Victim to a Loan Scam:
If you think you’ve been scammed, take immediate action. The longer you wait, the more damage the fake lender could do to your finances. Don’t worry, there are a few preventative measures you can take, such as:
- Review all your credit and banking accounts for suspicious activity
- Have your credit cards cancelled by your credit card companies
- Contact your bank, ask them to freeze your accounts temporarily
- Request that your bank account numbers and other information be changed
- Contact Service Canada and request a change of social insurance number (if necessary)
- Contact the authorities. Every police department should have a branch dedicated to fraud, identity theft, and other financial crimes
Need some debt relief from predatory loans? Check this out.
Make Sure Your Credit is in Good Standing
Hopefully, you’ve now found a legitimate lender that offers the right kind of loan for you. If so, it’s time to think about the application process. As we said, one of, if not the most important things to take into account is how easily you can afford your loan costs. One way of both reducing those costs and increasing your approval chances is by having healthy credit. Always consider the fact that your credit and loan are directly connected. How you deal with one will affect the other in different ways.
Good Credit (credit score of 650 or higher)
When you make payments on their scheduled due dates and in their full designated amounts, your credit score will go up. This effect occurs with any credit product you’ve activated. Having good credit will increase your approval chances and give your lender more faith in your financial ability. Since your lender then considers you a less risky client, they may offer you a lower interest rate, saving you money over time.
Bad Credit (credit score of 620 or lower)
On the other hand, making short or late payments, or even worse, missing your payments completely will cause your credit score to drop. Again, this will be the effect with any active credit account in your credit report. Having bad credit decreases your approval chances and gives your lender less faith in your financial ability. The riskier your lender considers you, the higher your interest rate will be, costing you more over time
To see how bad credit can affect your daily life, check out this infographic.
Credit-related Elements Your Lender May Inspect
Some online lenders do offer loans with no credit check. However, that might not always be the case. If so, during their evaluation, they’ll be inspecting things like your…
- Payment history (how you’ve been paying your accounts over several years)
- Credit report (file containing your personal and credit-related information)
- Credit score (basic representation of your actions as a credit user)
- Credit rating (grade your lenders give you)
- Credit history (length of your credit accounts)
- Credit variety (your capacity to handle other types of credit products)
Improving Your Credit Before You Apply
Since good credit can increase your approval odds and lower your interest rate, it’s best to get your credit as healthy as possible prior to applying. You can do this using a few different techniques, including but not limited to:
- Request a copy of your credit report and check it for errors or fraudulent activity
- Dispute any errors or have a fraud alert be placed on your accounts
- Pay off your other outstanding debts in the fullest amounts possible
- Have a variety of credit types
- Make timely, full payments on all these products.
- For revolving products (credit cards, lines of credit), make minimum payments if you can’t afford the full amounts.
- Reduce your credit utilization ratio for your revolving products by paying down debt or requesting a raise in your credit limit.
Looking for additional details about these credit improvement steps? Try reading this.
Prepare to Apply
There are a few other steps you can and should do before you apply. The main thing here is to be prepared for the application process, even if that process is done exclusively online. Remember, your lender wants to know, first and foremost, that you can afford to pay every cost associated with the loan, as well as complete your payments by the end of your loan schedule. To prepare yourself properly, here are a few techniques you should employ:
- Talk to your lender and ask what relevant documentation they’ll inspect
- Organize and update this documentation (personal, financial, etc.)
- Determine an appropriate payment schedule length (months or years)
- Calculate exactly how much your loan would cost (payments, interest, fees)
- Factor all these costs into a proper budget
- Apply when ready!
Make sure to read this before you apply for any loan.
A Word About Guarantor Loans
Another loan option that you can apply for online is the “guarantor loan”. Similar to a regular personal loan, you would apply for a set amount of money, which you would then pay back through equally divided payments with interest. However, the reason guarantor loans get their own section here is because they can be very beneficial for borrowers who have bad credit or can’t get approved for another reason.
Is a guarantor loan the right option for you? Find out here.
Applying for this type of loan involves finding a guarantor to cosign your application. They need to be someone with good credit and high financial standing. Having a guarantor on your side should, once again, increase your approval chances and lower your interest rate. However, before you choose this option, make sure your guarantor is fully aware of the potential consequences for defaulting. If you can’t afford your payments, the responsibility of your loan will fall to them. This can cause severe debt and credit damage for both parties involved if they also start defaulting!
Need an Online Loan? Apply With Loans Canada!
If you’ve been looking for a legitimate source of online loans, look no further. Loans Canada can match you with the best lender for your needs, get started by filling out an application today.
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