Applying for a personal loan is often the answer for financing a large purchase, unexpected expenses, or debt consolidation for most. While your bank is one option, online lenders can often have competitive rates and not to be overlooked.
Choosing a bank or online lender isn’t the same for everyone, but we’ve made it easier for you to compare your options by explaining much of what it is you should be on the lookout for when trying to decide where to get a personal loan in Canada.
What is the Difference Between Banks and Online Lenders?
For a long time borrowers in Canada had one option, that being the ‘brick-and-mortar’ locations of banks. In recent years, access to consumer credit changed significantly with online lending. Not only did you have access to information readily available, but lenders were competing for your business.
Banks – the average bank will offer a variety of financial products, from mortgages and savings accounts to credit cards and more, which also includes personal loans. Most banks require a good credit score in order to be eligible and your history with the bank can be a factor. You might also be required to visit a branch or location. It should be noted that when someone has been with their bank for a while, they can sometimes receive what is referred to as a loyalty discount.
Online Lenders – the online lender tends to have less overhead costs (like branches) and it’s said that this enables them to pass along the savings and be competitive with banks. Many online lenders have a more streamlined process that allows them to deliver a faster response on your application status and they often deal with more types of consumers, including those looking for bad credit score loans that the banks won’t usually consider.
Most online lenders are built for speed, meaning the actual steps of applying, processing and disbursement or being funded are often faster than many banks. Additionally, the eligibility requirements of online lenders often make it easier to get approved. Also, another difference is online lenders focus on loans and don’t offer deposit accounts, which makes it that they are not required to obtain a full banking license.
Choosing a Lender for a Personal Loan
How you decide which option is right when comparing personal loan options can depend on a number of factors, with some possibly being about more than rates or fees.
If it’s important to you to keep all your accounts in one place or doing business in person, then a bank might be the better option for you. But if you are open to finding the best rates and options that might be available to you, then online lenders might be the answer.
Fees – from prepayment penalties to origination fees, most lenders are different in what fees and interest rates they might charge. With personal loans, your credit score can be a big factor in how they determine the cost of borrowing.
Prequalifying – many online lenders allow you to prequalify for personal loans by submitting a soft inquiry. Also known as a soft credit pull, this is when you provide a lender with authorization to check your credit score so they might provide offers. The soft inquiry does not have an impact on your credit score. Being prequalified or preapproved are two different things, and being prequalified is not a firm credit offer.
Amount – the amount you request can also impact your eligibility, along with the repayment terms. It’s worth noting that if fees are involved, they can sometimes be subtracted from the amount you borrow, so be sure to determine whether the case if you need the funds and amount for something specific to avoid coming up short.
The rates, fees and terms of unsecured personal loans will vary from one lender to the next, and while you want to pay attention to the entire agreement before signing, most recommend to keep an eye on annual percentage rates (APRs) when comparing lenders.
Making A Choice
Once you’ve looked into your options and compared rates and terms, you’ll eventually have to decide the avenue you prefer.
You might choose an online lender if you prefer the convenience of the online experience, want a fast process, or your credit history does not meet the standards required by many banks. Choosing online loans also makes it easier to compare rates and terms.
You might choose a bank if things like in-person customer support or having all your accounts in one place are important to you. Credit unions can also be another possibility. Banks often have more paperwork than online lenders, but if personalized service is important, this might be the choice for you.
This is a choice that only you can make, but hopefully some of the factors mentioned above make it a little bit easier to choose. Comparing between banks and online lenders can help ensure you are getting the best options.