Where can I borrow money in Canada?

Whether you need to borrow money for home repairs, pay bills, or for whatever reason you may need additional finances, there are numerous ways you can get a personal loan in Canada. Before you borrow, take a look through our comprehensive personal loan guide below for all the details you need to know about borrowing money.

Secured vs Unsecured personal loans in Canada

From student loans to mortgages, the types of loans in Canada can be categorized into the following:

Secured personal loan

A secured personal loan requires borrowers to put up collateral in order to secure borrowed funds. Collateral can be anything—whether it be a vehicle, home, or other high-value asset. The idea here is, that if you are unable to pay back your personal loan by the end of your term, or the borrowed funds in full, your lender can seize your assets to make up for the money that they lost. While a secured personal loan may appear risky, it's usually a great way to be approved for a greater loan amount with lower interest rates.

Unsecured personal loan

On the other hand, an unsecured personal loan does not require collateral to secure the loan. Therefore, if you are unable to make your payments on time, your lender isn't able to seize your assets. Keep in mind, however, that unsecured loans tend to have higher interest rates than secured loans. It's possible that you won't be able to secure as high of a loan amount as well.

Where to get a personal loan in Canada

In Canada, there are plenty of options when it comes to finding a lender. Here's a closer look at some of the most popular choices if you're looking for a Canadian lender:

Financial institutions

Financial institutions are one of the most common places in Canada where you can borrow money from. Banks typically offer traditional loans such as personal loans, lines of credit, credit cards, and more. If you already have a bank account with one of the top 5 banks in Canada and have a good credit score, you'll likely have an easier time getting your loan application approved. And because you already have a relationship with your bank, there could be room to negotiate interest rates.

Credit unions

Credit unions are similar to banks. However, credit unions are owned by members rather privately, which is one of the major differences between credit unions vs banks. Credit unions tend to offer personal loans similar to those offered by banks. However, if you do have bad credit, you may be able to secure a loan from a credit union more easily than through traditional lenders.

Online lenders

Online lenders are another way you can get a personal loan. Typically, when getting a loan online, you'll want to be careful, as a lot of these companies take advantage of borrowers. That said, if you're looking to avoid a credit check, getting a loan online may be your only option. Another thing to note is that online lenders often have high interest rates and hidden fees. So, make sure to do your research before sending out online loan applications.

Payday loan companies

Lastly, you have payday loan businesses. These types of companies are ones that you'll generally want to avoid at all costs if you are unsure whether you'll be able to make your loan payment on time. How payday loans work is that they act as a cash advance until your next paycheque. The idea is that you'll be able to repay your loan amount plus interest by the time your paycheque comes.

While this doesn't appear to be a bad option, payday loans have extremely high interest rates. Therefore, by the time you make your loan payment, you'll owe a considerable amount more than what you originally borrowed. Additionally, depending on your financial situation, if you're unable to make your personal loan payments in time, it's an easy way to get into a large amount of debt quickly.

How to apply for personal loans

Unsure how to get a bank loan? While the process may look a little different depending on where you're applying for your personal loan, here's a general overview of what you can expect the loan process to look like:

1. Shop around and compare interest rates

One of the best things you can do when getting a personal loan is to shop around and compare interest rates, loan amounts, and repayment schedules offered by lenders. By doing so, you'll be able to weigh your options and find a personal loan that works best for your situation. Most lenders have a personal loan calculator on their website, which you can use for free.

2. Apply for your personal loan

Once you've compared personal loans and found one you like, you'll need to fill out a loan application. During this time, the lender will run a credit check on you by contacting a credit bureau and asking for a copy of your credit history. Depending on your current credit score and the overall look of your credit history, you'll either be approved or denied.

3. Get your loan deposited into your bank account

Once your personal loan is approved, it will be deposited into your bank account in one lump sum payment unless you applied for a personal line of credit.

4. Pay off your personal loan

Now that your personal loan has been deposited, you're able to use the money to pay for whatever it is you need. Moving forward, you'll need to make monthly payments according to your repayment schedule until your loan term has come to an end.

Can I get a loan with a bad credit history?

While getting a personal loan may be difficult when you have bad credit, it's not impossible. There are other loan options out there for those who are unable to secure loan amounts from traditional venues. Keep in mind, however, that these borrowing solutions tend to be riskier. Typically, if you want to get a personal loan with bad credit, you'll mostly need to apply online with an online lender. You may be able to find a personal loan from a credit union as well. But, the interest rates may be higher, and you may be asked to put forth collateral in order to be approved.

Therefore, you need to make sure you do your research beforehand and read the loan details before signing any documents moving forward.

Are there no credit check loans in Canada?

Yes, there are also loan options for those who want to avoid credit checks at all costs. Known as no-credit lenders, these types of loans often include cash advances, payday loans, and personal loans with extremely high interest rates. While the entire process will usually take just a few minutes, if you can find other lenders who only perform a soft credit check as opposed to a hard one, you may be better off choosing the latter, as online services tend to be riskier.

What can I use a personal loan for?

With personal loans, you'll have numerous options when it comes to how you spend your money. Here are some common reasons why you may want to take out a personal loan now or in the future:

Debt consolidation

Debt consolidation is when you combine several smaller debts or personal loans into a single loan with one monthly payment. When you consolidate debt, you take out a larger loan and then pay off all of your smaller loans. Moving forward, you'll only need to make one payment monthly, which can be easier to manage and offer a better interest rate.

Purchase a new car

Need a new set of wheels? Getting a personal loan to purchase a new vehicle is a great option if you are unable to pay the full amount upfront. You can either use banks or credit unions or work with your dealership directly to secure your car loans in the future.

For a house or other major purchase

Many Canadians take out a personal loan, also known as a mortgage to make a down payment on a home. Finding the right loan for your financial situation is essential when applying for a mortgage, as you'll likely be paying off this loan anywhere between 10 to 20 years.

Pay for school tuition

Want to go back to school? Tuition can be expensive these days. But, with the help of a personal loan, you can pay for your tuition, books, and other school-related expenses while you're a student.

Other urgent financial needs

When unexpected expenses pop up, and you haven't prepared your plans for spending and saving correctly, getting a personal loan or line of credit is a good way to take that financial stress away.

Are there risks involved with personal loans?

The risk of personal loans for Canadians can vary between individuals. However, one of the most prevalent ones is being unable to make your monthly payments, which can lead you down a cycle of debt. Borrowing money through personal loans is a big responsibility. Based on your income and credit history, you may only qualify for secured loans, which can put you more at risk if making your loan payments on time by the end of your term is not possible.

Ultimately, before applying for personal loans, you'll need to weigh the pros and cons of doing so and look for alternative loan products before making such an important financial decision.

Where is the best place to borrow money in Canada?

Generally speaking, borrowing money from a bank or credit union is probably the best and safest option when it comes to personal loans. Most banks and credit unions offer the lowest APR, also known as the annual percentage rate, which calculates the yearly interest you'll generate on a loan amount.

Unlike an online application from online lenders, banks and credit unions with a reputable history can give you confidence in knowing that you're borrowing money from a trustworthy source. Online lenders can be risky, and without proper research beforehand, you may end up paying unknown costs and other applicable fees that add up in the end. Regardless of your current credit score, we recommend trying to get a loan through traditional channels before looking elsewhere for a loan.

How can I improve my credit score?

Poor credit leaves a blemish on your credit history. Luckily for you, there are strategies to improve your credit history and credit score:

Pay off high-interest debt first

In a scenario where there are no prepayment penalties tied to your debt, the best thing you can do is begin paying off high-interest debt first. By doing so, you'll save money in the long run, and you won't have to worry as much about your low-interest debt as much.

Make your monthly payments on time

Making timely payments demonstrates to creditors that you can use and fulfill your financial commitments. Your payment history has a large influence on your overall credit score. In many respects, it demonstrates to lenders that you are a trustworthy individual with a low-risk rating who understands how to manage money. Missed payments can be a red flag for lenders and make it more difficult for you to apply for a personal loan in the future.

To ensure you never miss a payment, set up automatic payments with your bank account. If you aren't able to do this, program a reminder in your calendar for each month. One thing to note is that even if you miss the due date, aim to pay off the minimal amount or sooner. Most lenders overlook a missed payment until it is an entire month or so late.

Keep your credit utilization rate low

Your credit utilization score measures how much debt you owe in contrast to the finances you have available. This ratio accounts for about 30% of your entire credit score and should always be less than 30%. Anything above that indicates to lenders that you are living beyond your means and are unable to use your money responsibly.

To keep this usage ratio as low as possible, we advocate paying off high-interest debt first, which can help you pay less over time, as we mentioned above. To offset any interest owed on your debt, you must make at least a minimum payment each month.

Be patient

Lastly, be patient with your money and overall financial health. A substantial change in your credit won't happen immediately.

Developing sensible spending behaviours now will help you plan for the years to come. Check your banking records and set up automatic payments to ensure that you pay on time. Only use your credit card if absolutely required. Although it may be difficult to modify what you spend at first, budgeting ahead of time and keeping within your financial means will help you achieve a healthy credit score in the near future.

Not sure what your credit score is? Get a free credit score check and build your credit with KOHO by opening a virtual credit card, today!

Take control of your financial goals with KOHO

At KOHO, we help Canadians take control of their finances and help them plan for the future. Whether you want to increase your financial literacy through our resource hub or open a high-interest savings account with overdraft protection coverage, think of KOHO as your friendly advisor who's here when you need us.

To learn more about how KOHO can help, reach out to us any time and browse through our financial products. You may just find something you like!