Let’s face it, life is expensive. Owning a home, maintaining a car, and buying groceries, the costs can add up. While these expenses may be covered by your monthly income, other larger or unexpected expenses may require a loan.
A loan can help spread costs over a long period, making the expense more manageable. This is particularly true when unexpected expenses pop up. To help cover the costs of a large or emergency expense, a loan from a private lender in Canada can help.
Key Points
- A private loan refers to financing provided by non-traditional lenders, such as private companies or individuals, instead of banks or credit unions.
- Private lenders have less strict loan criteria, making them easier to qualify for, even if you have bad credit.
- There’s more risk for private lenders when dealing with borrowers who are unable to qualify for traditional loans, and as such, they may charge higher interest rates and offer less favourable loan terms.
What Is A Private Loan?
As the name suggests, a private loan is a loan from a private lender. But what makes a lender “private”?
Essentially, a private lender is any lender who is not associated or affiliated with a traditional financial institution. Normally, these private lenders are not as constrained by regulations and have much more flexible lending requirements. They often accept borrowers that banks and other traditional financial institutions reject due to poor credit.
A private lender can be a company, a group, or an individual. The private loans that they offer work very similarly to the loans offered by a bank or other traditional financial institutions.
However, because they accept borrowers with poor credit or finances, many private lenders will charge slightly higher interest rates to protect themselves from the additional risk they take. Of course, the actual rate and the terms of each lender will vary.
Where Can You Get A Private Loan?
Filters
- Amount
- Up to $35,000
- Rate
- 9.99% – 35%
- Term
- 9 – 78 Months
- Amount
- Up to $60,000
- Rate
- 19.99% – 34.99%
- Term
- 6 – 120 months
- Amount
- Up to $10,000
- Rate
- Varies by product
- Term
- Varies by product
- Amount
- $500 – $100,000
- Rate
- 12.99% – 34.99%
- Term
- 9 – 60 months
Types Of Private Loans In Canada
Private lenders offer many of the same loans you expect from banks. Some popular loans you can find with a private lender in Canada include:
Personal Installment Loans
Like banks and other traditional financial institutions, private lenders also offer personal installment loans. It works the same as the one you’d get from a bank, except the interest and fees charged will be higher. You may also not get terms that are as flexible. However, if you’re someone who is struggling to get a personal installment loan from a bank, you’ll likely find a private lender who’d be willing to lend to you.
Learn more: Direct Private Lenders For Personal Loans In Canada
Private Mortgages
In Canada, there are numerous private companies and individuals who offer private mortgages. These mortgages are often easier to qualify for, as lenders are not federally or provincially regulated like the banks. That means the stress test and other requirements are not enforced.
However, these private mortgage lenders typically charge higher interest rates and can have shorter terms than banks.
Learn more: Private Mortgage Lenders In Canada
Private Auto Loans
Like mortgages, there are also a number of private auto lenders in Canada that offer auto loans. You can get a private auto loan straight from the lender or through car dealerships that have partnered up with private auto lenders.
Many dealerships do this in order to provide financing to individuals with good and bad credit. However, like any private loan, it often comes with high interest rates and fees.
Learn more: Bad Credit Car Loans Canada
Private Student Loans
While the Government of Canada offers many student loan programs at the federal and provincial levels, not everyone can qualify for them. That’s when some students have to rely on private student loans.
Depending on your private lender, they may offer you a grace period after graduation, however, some may require payment right away, like a regular personal loan.
Learn more: Student Loans In Canada
Private Lines Of Credit
A private line of credit is a flexible type of revolving credit that allows consumers to borrow funds up to a set limit, similar to a credit card. Repayment is based on usage instead of a fixed schedule, so you can borrow any amount, as long as it doesn’t exceed the credit limit. Credit lines typically offer lower interest rates than credit cards, and interest is only charged on the amount withdrawn rather than the full credit limit.
Some examples of personal lines of credit in Canada include MogoMini
| MogoMini | The MogoMini line of credit is a flexible borrowing option from Mogo that lets you access up to $5,000 with an open-ended repayment term. |
| MoneyUp | MoneyUp is a Canadian financial firm that offers FastForward, a convenient line of credit that allows you to access a portion of your paycheque instantly without having to wait for payday. |
| Bree | Bree offers small cash advances up to $500 with zero interest and no credit checks to help bridge the gap between paycheques so you can cover urgent expenses without incurring overdraft fees. |
| Nyble | Nyble offers an interest-free line of credit of up to $250 without a credit check. It’s designed to help consumers access quick cash to cover pressing expenses. |
Learn more: Best Lines Of Credit In Canada
Business Loans
A business loan provides funds to help companies better manage their cash flow, cover expenses, expand operations, purchase equipment, and invest in growth, among other things. Businesses can get financing from banks, credit unions, alternative lenders, or government programs to achieve their goals and support their financial needs.
Learn more: Private Business Loans In Canada
Requirements For A Private Loan
The requirements for a private loan depend on the lender you choose and the type of loan you apply for.
Private Personal Loans Requirements
To qualify for a private personal loan, you’ll typically need the following:
- Be 18+ years old or the age of majority in your province
- Have a reliable source of income
- Have a reasonable debt-to-income (DTI) ratio
- Have a good credit score (though most private lenders accept bad credit)
- Show proof of residency and identity
Private Car Loan Requirements
To secure a private car loan, you’ll need the following:
- Valid driver’s license
- Proof of sufficient income
- Information about the vehicle you plan to buy, including the year, make, and model
- Proof of auto insurance
- Valid government-issued ID and proof of residency
Private Mortgage Requirements
Private mortgage lenders tend to have more flexible loan criteria compared to traditional banks, making them ideal for those who can’t meet standard bank requirements. For instance, while a mortgage stress test is a typical requirement for a standard home loan, it’s not often required with private mortgage lenders.
That said, the requirements for a mortgage from a private lender are as follows:
- Down payment, typically between 15% to 30% of the home’s purchase price
- Sufficient income
- Information about the home, including:
- Address
- Purchase agreement
- Proof of home insurance
- Appraised value
- Good credit score, though lower scores are often accepted
How To Choose A Private Loan In Canada?
Private lenders are located all across Canada. While they may be more abundant in urban areas, you can access online private lenders no matter where you live.
Different lenders will have different specialties and will work better for certain situations. To find a private lender that can provide you with what you need based on your particular financial situation, consider the following tips:
Compare Lenders
Do some research to find the right lender for you. Look for an online presence for any private lender you might want to work with. Do they have any online reviews? Are the reviews good or bad? Does it seem like they have a good reputation? Are they advertising their rates, terms, conditions, and fees?
During this research phase, you should be able to weed out the good from the bad in your area. The lender you ultimately go with should have a good reputation, offer what you need, have impressive experience, and be somebody you are comfortable working with. Start by using an online loan comparison website, like Loans Canada, to quickly find lenders and compare their offers.
Check Your Credit Score
Checking your credit score before finding a private loan helps you understand what you may be eligible for, including your loan amount and interest rate. Lenders use credit scores to assess risk, so a higher score can improve your odds of loan approval and lead to better loan offers.
You can check your credit score with the credit bureaus, banks, and third-party providers, like CompareHub.
Get Pre-Approved
Getting pre-approved for a loan offers several advantages:
- Understand Your Budget: Pre-approval helps you understand how much you can afford to borrow and at what interest rate.
- Compare Loan Offers: You can shop around for the lowest rates and best terms without committing right away.
- Faster Loan Approval: Since lenders have already reviewed your financial situation, final approval can move along faster when you formally apply.
Differences Between Banks, Credit Unions And Private Loan Lenders
| Types Of Lenders | Definition | Approximate Interest Rates | Lender Examples |
| Banks | Major financial institutions like Canada’s Big Five banks offer personal loans. They generally offer the best rates but have strict requirements. | 0.5% - 15% | - TD - BMO - RBC - CIBC - Scotiabank - Laurentian Bank of Canada |
| Credit Unions | Credit unions are non-profit organizations that are owned by their members. They offer smaller loans than banks but rates are still affordable. Requirements are also more flexible than banks, but you must be a member (of the credit union) to get a loan. | 3% or more | - Fusion Credit Union - First West Credit Union - PACE Credit Union - DUCA Credit Union - Meridian Credit Union - Vancity Credit Union - Ganaraska Financial Credit Union |
| Private Lenders | Private lenders are easier to qualify for than banks due to their flexible lending standards. Even those with poor credit may qualify, however, they often charge much higher rates than banks, making them a more expensive option. | 8% - 35% | - Loanz - Spring Financial - LendDirect - LoanMeNow - Consumer Capital Canada - Mogo |
Can You Get A Loan With Bad Credit From A Private Lender?
While some private lenders will work with individuals with bad credit, others may not. As mentioned previously, each private lender has their own set of requirements and will decide what loans to offer and what rates or terms will accompany those loans. It’s always a good idea to ask your private lender about their eligibility requirements before applying.
If you have unique borrowing needs, don’t be afraid to ask a lender if they will be willing to help you out. They may be more willing to do so than traditional lenders.
Benefits Of Working With A Private Lender
There are several benefits of working with a private lender over a traditional financial institution:
- Convenience: One of the first and most important benefits simply comes down to convenience. Private loans are often easy to apply for and can be completed online.
- Fast Approval And Funding: Many private lenders have an automated underwriting process that quickens approval decisions. Some lenders even provide instant approvals, which is great for those who need cash urgently.
- Personalized Service: Another great benefit of working alongside a private lender is that they can offer personalized services. They will work directly with you to find a good solution for your needs and are generally more flexible and willing to make changes if needed.
- Low Requirements: One of the major attractions of private lenders is their flexible requirements. Many accept borrowers with poor credit, and look at your overall financial health rather than just your credit score. So, if you have a high income, low debt, and a stable job, your chances of getting a loan from a private lender are relatively high.
- Flexible Terms: The terms of these private loans are also more relaxed, which is great for reducing stress. Many will offer flexible repayment plans that most traditional lenders simply cannot offer their clients. Of course, these loans aren’t perfect, so be sure to read the fine print and be aware of everything you’re agreeing to before signing anything.
When Is It The Right Time To Choose A Private Loan?
As a Canadian consumer, there are countless borrowing options to choose from, so it can be difficult to decide when to go with a private lender. Having said that, private lenders offer more accessible financing opportunities to consumers, particularly those who may not meet all the typical criteria of a traditional lender. Here are a few scenarios where a private lender could be the right choice for you.
You Have Bad Credit
For bad credit consumers, a private lender is often more willing to work out a deal that takes into consideration more than your credit score.
You Need An Alternate Option
Working with a private lender may be your only option. If traditional banks and institutions won’t offer you the loan you require because of your inadequate financial or credit profile, the next logical step for you is to go to a private lender. As mentioned, these lenders have less strict loan criteria that may be easier for you to meet.
You’re Looking For Quick Approval
Another great situation to make use of a private lender is when you need fast cash o cover a pressing expense. Traditional lenders tend to take longer to approve loan applications and provide funding. If you want quick approval, private lenders are certainly a good option.
Bottom Line
Private loans offer a flexible alternative to traditional financing, catering to consumers who don’t meet the criteria of banks. So, if you have bad credit, high debt, or earn a non-traditional form of income, private lenders may be the way to go. However, you should carefully assess the rates, terms, and repayment conditions, as these loans may be more expensive and less favourable in exchange for the accessibility and convenience.
