What Are Your Options to Borrow Money in Canada?
Some might say a bank or credit union would be the first stop for most Canadians looking to borrow, but if you look around, it’s not your only option. When you need funds for an emergency or unexpected expense you’ll find there are actually many options available to you, especially when you start looking at online lenders.
But before you start applying, there are a number of questions you should be asking yourself or considering as you compare your options. From what the interest rate or terms are to how you can afford are generally good places to start.
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While many might assume a personal loan is their best option or only one, there are actually a number of ways to borrow money in Canada to choose from that don’t include the bank. There are many online lenders to choose from that work with those that have less than an excellent credit score that may be able to help.
Borrowing with Online Loans
For those that are interested in exploring their options for borrowing online there are often a variety of lenders as well as types of loans to choose from.
Personal Loans – when you have purchase plans but don’t have the funds, an online loan for things like a big purchase, debt consolidation, travel, home upgrades or similar would suggest that you can use an online personal loan to help out.
Installment Loans – similar to personal loans, an installment loan requires repayment over scheduled periods. The main difference with installment loans is they are usually for someone with less than good credit that might not qualify for personal loans and would have a higher interest rate involved.
Payday Loans – an expensive way to borrow, it’s an option for those with bad credit where other lenders might reject their application. These are high interest loans up to $1,500 that often require repayment on your next payday.
When looking to borrow online, the interest rate that you might be eligible for is related to your overall credit score. For this reason, you should know what your score is before thinking about applying for an online loan. It’s possible that your credit score might be a few points from the next level. If you are able to wait and don’t have an immediate need, improving your score before applying can save you both a few percentage points for the APR and costs.
The following table can provide you with an idea of what options might be most suitable for your own situation.
|Credit Score||Rating||Sample Interest Rate|
|300 – 559||Very Poor||18% to 47%|
|560 – 659||Poor||15% to 40%|
|660 – 724||Fair||7% to 20%|
|725 – 759||Good||6% to 15%|
|760 – 900||Excellent||5% to 15%|
The above is related to unsecured loans and your credit score typically determines the options that you might be eligible for.
RELATED: What Credit Score is Needed for an Online Loan
Other Borrowing Options
Online loans are not your only option available when looking to borrow money in Canada. Sometimes you need to look at your other options for borrowing so you can evaluate your options and determine which is the best for your situation.
Credit Cards – you can use your credit card to make purchases, and make the payments as they suit your budget. You also have the option of taking a cash advance, which can be another viable option depending on what you plan to use the funds for.
Line of Credit – there are a number of different LOC (line of credit) options available, from secured and unsecured to home equity and more. Choosing an LOC usually requires a good credit score to qualify, so it might not be an option for everyone.
RELATED: Does Applying for a Personal Loan Affect My Credit Score
What’s the Right Option?
Sometimes it isn’t about choosing what is the right option, but the available one. For example, you might be attracted to personal loans as a solution, but if you didn’t qualify due to a lower credit score, you might have to settle for an installment loan instead.
When considering the options available the things to be looking at often include the overall interest rate (or APR), processing time and repayment terms to start. You should also look closely at whether there might be other fees to know about as well.
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Typical requirements to borrow include being at least 18 years of age (or the age of majority in province) along with being a citizen or resident, having a steady income and meeting minimum income or credit score expectations. One consideration if you don’t need the funds immediately for an emergency or urgent need is to find out your credit score if don’t already know what it is. The reason for this is that if your score was close to the next credit band, it is likely worth your while to delay applying and work on improving your score first. As an example, if you score was around 650, by improving it 10 to 20 points could lower your interest rates, which could save you hundreds or even thousands in interest, depending on the amount and term you are interested in. If this sounds like it applies to you, it is worthwhile to learn about improving your score so that you might qualify for better terms and interest rates. You should keep in mind that when borrowing an installment or personal loan the length of the term can lower your monthly payments, but also cost more in interest overall.
It literally pays to educate yourself about a number of things when borrowing and GoodCheddar offers a wealth of knowledge to help you with making informed decisions. It’s recommended that you take the time to learn more about borrowing before you start applying so that you can qualify for your best options.