Many Canadians are looking for new ways to borrow, and while the idea of borrowing online is not new, it can be for some. Online lenders often make it easy to borrow money, and financial technology (fintech) companies have grown in recent years. But it pays to know more so you might avoid questionable borrowing options.
For many the idea of borrowing money was limited to visiting their bank to speak with someone. Which would then take days before anyone got back to you. If you were approved, you might have the funds in your account in about 2 weeks. But with many fintech companies, it can take minutes to get funded. This is often possible due to loan funding by e-transfers which make it very fast to get the funds in your account.
In recent years many Canadians have managed to bypass the regular channels of borrowing by refinancing their home or using a home equity loan (HELOC) when they needed cash. But this is becoming less of an option for some.
What to Know When Borrowing Online
With most lenders the criteria is often similar, even if the type of loan such as personal loans or installment loans might be different. Common requirements include being a citizen or resident of 18 years or older, employed and meeting minimum income requirements, with a fair to good credit score. Not every lender relies on using credit scores for evaluating an application, but it’s more common when requesting higher amounts to borrow.
With personal loans the amount available is often higher, and the length of repayment terms is usually longer as well. To qualify for this type of loan you often need a good credit score, especially with banks. When you compare banks to online lenders there are several differences, but the main one worth noting is that being approved by online lenders is often faster and easier.
How to Qualify When Borrowing Online
You also want to ensure that your debt to income ratio is not too high. Also known as DTI, it’s a way of looking at your income in comparison to what you owe. This can be seen as a red flag by some lenders and impact that amount you might qualify for. While every lender has their own way of doing things and many have their own limits for DTI, as a basic guideline it should probably be well below 30 percent.
Your credit score is a factor with installment loans and personal loans, which tells a lender a bit about your borrowing habits and how likely you are to make your payments. Your chances of being approved will increase if you have a good credit score since it will suggest your creditworthiness makes you a suitable candidate to borrow.
Other Tips When Borrowing Online
Before signing any agreements, always read the terms. Looking at the annualized percentage rate (APR) is often a better way to identify the cost of borrowing as it should include any fees you may have missed. You also want to look for potential prepayment penalties that might be part of the agreement. Carefully read the entire agreement, because once you have signed you are committed to the terms.
Depending what you owe and the rates you’re locked into, there are instances where taking a personal loan can help with debt consolidation and reduce your monthly costs. While this might increase the term of the loan, the overall monthly payment could be less. You would need to carefully consider if paying more interest for a longer term would be worthwhile if it can reduce the monthly payment and make things more manageable.
Other Options for Borrowing Online
Some will find it challenging when they have difficulty to borrow online, especially if they have a bad credit profile and history of not making payments on time. In cases like these some people can be lured by promises of guaranteed approval but these tend to be more deceptive lenders using language that might attract those that are more desperate to get a loan.
Those that are more eager to find funding and have poor credit are often more likely to consider options like title loans or pay day loans as their borrowing option. These are expensive ways to borrow that include high interest rates. For this reason, it is strongly suggested to avoid these types of loans and to only make use of them after all other options would have been exhausted.