Having a great credit score provides you with a chance to get the best rates and terms when looking at getting a personal loan. When you have excellent credit in Canada, getting a personal loan is not only easier to qualify for, you’re likely to pay much less to borrow.
Many assume that going to a bank or credit union will provide the best rates, but online lenders often compete and many have even better borrowing options.
How Does My Credit Score Affect My Loan Options?
The main credit bureaus in Canada (Equifax and TransUnion) have credit profiles on most adults and score them from 300 to 900. The average credit score in Canada is around 670 and many banks won’t touch a loan request unless it’s mid 700’s. But online lenders will consider many applicants, even people with a bad credit score have a chance to get a loan. Those with a credit score of 750 or better stand to get preferred rates, but the best personal loan options are reserved for those with excellent credit.
In addition to looking at your credit score for personal loans many lenders will consider other factors when considering your application. Details like your income, credit utilization and debt to income (DTI) ratio can all be part of what a lender will review to determine the creditworthiness of an applicant.
What is an Excellent Credit Score?
An excellent credit score would be 800 or higher, with only a small number of Canadians being able to achieve such a score. Since the length of time you’ve had credit accounts is a consideration for arriving at a score, most young adults won’t have a credit score this high even if they do everything right because the age of some accounts like credit cards needs to be 10 years or older, along with having a good payment history and credit mix like car loans and having a mortgage would help as well.
From the point of view of a lender, a strong credit score provides them the confidence that it’s likely you would make your payments and pay the loan in full. Choosing shorter terms can also benefit you with lower monthly payments.
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How to Get the Best Personal Loans
Having an excellent credit score is a big part of being eligible for good rates when applying for personal loans. Other factors that can influence what APR or terms you might be offered tend to vary depending on the lender. Overall, the higher your credit score, the better the loan offer.
Most personal loans have an interest rate of about 15% to 45% for personal loans, and those with an excellent credit score are likely to receive offers with lower rates. While the process for applying is typically quick, one should not expect instant approval as they apply.
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How to Apply for Personal Loans
Start by calculating how much you might need to borrow. It’s advised to only borrow as much as you need, and that the monthly payments won’t be difficult to cover. While a longer term can lower the monthly payment, you’ll pay more interest. It’s best to find a balance where the payment and the term will work for you.
Before applying you should know your credit score in advance. One of the reasons being that if you were just a few points away from reaching the next credit band, it could be worthwhile to work on your credit score and wait. A simple example being, if your credit score was 695, if you waited until it was over 700 you could literally save yourself thousands of dollars. This would of course depend on the amount borrowed, but the point is it could be significant.
When you are ready to get serious you would want to start looking at what sort of rates and APR you could be eligible for. Don’t only look at the interest rates, also check the APR, which provides a more conclusive example for the overall cost of borrowing since it factors in things such as additional fees that might be involved.
Once you start getting serious about applying you should gather things like pay stubs, tax returns and other financial info so it’s on hand when you need it. Most lenders prefer to see at least 3 months of bank statements.
When looking for your best options for getting a personal loan with excellent credit you should always compare the options available to you in order to get the best rates possible.
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