When it comes to covering your expenses and debts, a predictable payment plan is generally the easiest to budget. Paying off expenses in even installments over a period of time can give you the flexibility needed to not live paycheque-to-paycheque. If you need a quick way to access a set amount of cash, you can apply for an installment loan.
Keep reading to learn about what an installment loan is and how you can find one that matches your financial profile.
What Is An Installment Loan?
An installment loan generally refers to a personal loan. With it, you get a set amount of cash from a lender that you can use to cover any expense. Any funds you are approved for will usually be deposited directly into your bank account. The loan is then paid back in equal installments, over a predetermined schedule, plus interest.
What Can You Use An Installment Loan For?
Once you have the money in your bank account, you can use it for anything you want. However, the fact that some lenders offer fast approval makes installment loans a good choice for important costs, like paying your bills or dealing with financial emergencies.
Features Of An Installment Loan
Loan Amounts – Depending on the lender and your financial profile, you can get installments loans from $500 up to $35,000 or more.
Interest Rates – According to the Criminal Code of Canada, the maximum annualized interest rate lenders are allowed to charge is 60% and anything above that is deemed illegal. However, most installment loan rates vary between 3% to 46.96%.
Term Lengths – Every lender also offers different installment loan terms to match their loan amounts and client profiles. Smaller loans often come with short terms of 6 – 12 months, while larger loans may be repayable over 5 or more years.
Repayment Plans – Lenders may offer several payment options when it comes to your loan installments, like monthly, bi-weekly and semi-monthly payment plans.
Requirements To Get An Installment Loan
Obtaining an installment loan can be easy enough. However, most lenders impose certain requirements that you’ll need to meet to qualify, including but not limited to:
Age & Residency – To be eligible for an installment loan, you must be a Canadian resident and over the age of majority in your province or territory (18 – 19+).
Credit Score – Generally, to qualify for a low-interest rate, you’ll need good credit along with a strong income. If you have poor credit, it may be in your best interest to improve it before applying for the loan. To check whether you have good credit, use Compare Hub; a free platform to check your credit score.
Income – You also have to meet the lender’s minimum income requirement and show proof of income, like recent pay stubs. While a job works best, government benefits and other incomes may be accepted too.
Employment – If your income is from your job, most lenders will want you to be steadily employed at the same location for at least 3 – 6 months before you apply.
Bank Account – Some lenders require you to have an active bank account for direct deposits and withdrawals but may offer other payment methods as well.
How To Apply For An Installment Loan?
Getting a personal installment loan can involve several steps and documents, but generally, you can follow these steps when applying for an installment loan.
Step 1. Find A Lender
Pick a lender with a valid business license and good reputation. Banks and credit unions are the safest but there are many reputable alternative lenders too. Be sure to compare lenders and get loan quotes to score the best rates and terms.
Step 2. Apply
Once you find a good lender, submit your application in-person or online. You may need several documents to apply such as :
a government photo ID (passport, driver’s license, etc.).
Step 3. Get Funded
Some lenders take a couple of days to review your application and fund your installment loan. However, if you apply on a typical business day, your loan may be deposited directly into your bank account within the next 24 hours.
How To Calculate Your Installment Loan Costs
Generally speaking, there are 4 major factors that affect the cost of an installment loan:
Loan Amount – Probably the most obvious expense is the amount you borrow, the more money you borrow, the more your loan will cost and ultimately the longer is will take to pay off.
Term Length – The same goes for your installment loan term. Shorter terms will have higher payments but you will end up paying less in interest compared to a loan with a longer-term.
Interest Rate – Your finances and loan conditions are key factors here. So, if you apply for a short-term loan with bad credit or a low income, you should prepare to qualify for higher rates.
Fees – Some lenders also charge high borrowing fees. Make sure to read the fine print and ask the lender about any service or administrative fees before applying.
Here’s an example to show you how the above factors can impact the overall cost of your installment loan during a standard monthly payment plan (not including fees):
Total Interest Paid
Pros And Cons Of An Installment Loan
Here are some essential benefits and drawbacks to consider with installment loans:
Fast Application Process – Some lenders offer quick approval and funding times of 1 – 2 days (or less), especially if you apply during their work hours.
Better Option Than Payday Loans – Installment loans are much safer than payday loans due to their higher amounts, lower interest rates, and repayment terms.
Bad Credit May Be Accepted – As long as they have a sufficient income, many lenders also approve clients who have weak credit scores and payment histories.
Secured Loans – Some lenders ask for collateral, particularly from clients who have poor credit or finances. This can increase the level of risk you’re taking because the lender can legally seize your asset if you default on your payments.
High-Interest Rates – Consumers who have lower credit scores will likely qualify for higher interest rates, which will ultimately make the loan more expensive. Consumers in this situation may want to consider working to improve their credit first.
Fees – Unfortunately, many lenders will charge fees to process applications. You may even run into some hidden or illegal fees if you’re not careful when selecting a lender.
Installment Loans Alternatives
Not sure if an installment loan is right for your situation? Don’t worry, there are many other effective alternatives for paying your daily expenses in Canada, such as:
Using Your Home Equity – If your home has at least 20 – 25% value, you may be able to borrow against it using a home equity loan or line of credit (HELOC). This may qualify as a “second mortgage” and result in two sets of payments.
Getting a Secured Loan – Secured installment loans are risky but can help you access more cash than unsecured loans offer, especially with bad credit or a low income. Viable assets include vehicles and real estate properties in your name.
Choosing the right installment loan for your needs may seem like a daunting task, especially with so many options available to Canadian borrowers. But, the good news is, it doesn’t need to be. Loans Canada can help you compare rates, terms, and reviews so you can make the best decision for your needs.
Installment Loan FAQs
Can I get an installment loan online?
Yes, plenty of prime and subprime lenders can offer you a fast and affordable online installment loan. Just make sure to pick a legitimate business with a good reputation, good reviews from former clients, and all the necessary permits to operate legally within Canada.
Do installment loans require credit checks?
It depends on your lender. Most banks and credit unions will run your credit because it tells them the likelihood that you’ll make your payments on time. However, if you have bad credit or you’re new to the country, many alternative lenders can offer you an installment loan with no credit check once you provide an acceptable income, a cosigner and/or collateral, for example.
Will an installment loan affect my credit?
This also depends on how your lender operates. For instance, if your lender reports your loan activity to both or one of Canada’s main credit bureaus (Equifax and Transunion), all your payments will impact your credit in some way. If you pay your installments on time, your credit scores and history will likely be positively affected.
What happens if I miss a payment?
If you miss a loan installment, several things can happen. First, the lender could add a penalty and interest to your debt. Then they may report it to the credit bureaus, which can lower your credit scores and leave a lasting negative mark on your credit history. The more payments you miss, the worse the situation will get. If you default entirely and your debt is large enough, the lender might turn it over to a collection agency, seize any asset that you gave as collateral or make your cosigner responsible for your payments.
Can I pay my installment loan off yearly?
Yes, many lenders will allow you to pay your loan off early, free of charge. Then again, some lenders will penalize you for breaking your contract, so always be very careful and confirm your lender’s rules prior to applying for an installment loan in Canada.
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