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What to Know About Canadian Personal Loan Rates

Loan Advice
What to Know About Personal Loan Rates

Many of the best personal loans will include flexible repayment terms, but you also want to find an option that works with your own financial situation. 

It’s never been easier to borrow, but your options often depend on your payment history, credit rating, income and amount requested. While it’s quicker and simpler than ever, finding the right option often comes down to finding reasonable interest rates, being aware of any hidden fees, and even avoiding penalties for things like making early payments.

What is the Interest Rate on a Personal Loan

Many interest rates on a personal loan will usually range from anywhere between 3.99% to about 35.99%, with the lowest rates reserved for those with exceptionally good credit scores. 

So while you might be wondering about the interest rates on a personal loan, it isn’t as black and white as something like buying a car, where a certain make and model would cost you an approximate amount. Much of it depends on your own credit and payment history, which helps lenders determine your creditworthiness, and what sort of risk you pose along with what the odds are of you making your payments and repaying in full.

How Do Canadian Personal Loan Interest Rates Work?

While your credit score probably has the most impact on what sort of personal loan interest rates or APR you might be offered, there are other factors.

Your income might be asked on the application, as many lenders want to know this almost as much as the amount you want to borrow. It helps them evaluate just how likely it is that you might have the means to make your monthly loan payment.

Looking at your debt profile overall also helps them to guage things, such as how much of your income might currently go towards covering any debt you may have. Looking at your debt-to-income ratio provides a better understanding. 

The actual loan amount can also influence the personal loan interest rates you might be quoted. Since the interest rate is basically expressed as a percentage of your loan amount, as you inch towards the threshold of a comfortable debt-to-income ratio, lenders may increase interest rates as they consider the risk. 

The overall repayment terms, or the length of time to repay the loan you choose is another factor that can affect your costs for monthly payments, and what lenders might consider within your means of managing payments. While you want to consider total costs in terms of interest, taking longer repayment terms can lower monthly costs and make it more feasible to lenders that you would be within your ability to continue making payments. 

RELATED: How to Improve Your Credit Score Before Applying For Personal Loans

What are the Lowest Personal Loan Rates

When you are looking for the best personal loan rates, you want to look beyond the banks and consider what online lenders might be able to offer too. It can often require comparing your options to find the lower personal loan rates available, but your own financial history will have a big say in what sort of personal loan rates might be available to you. 

The lowest personal loan rates are usually for those with excellent credit, which means having a score well into the 800’s to be considered. 

Those with a credit score between 700-800 are more likely to be considered a good credit score and receive better rates. In Canada the average credit score is about 660. 

RELATED: Best Personal Loans for Excellent Credit

How Much will a Personal Loan Cost?

Before you sign on the dotted line, it’s important to know that not everything is related to the annual percentage rate, or APR, when it comes to a personal loan. 

Many lenders also have additional costs like origination fees that you need to be on the lookout for. It’s for this reason that personal loan rates are not the only cost associated with the loan.

More: How to Eliminate Credit Card Debt with Personal Loans

What is the Average Interest Rate on a Personal Loan?

The average interest rate for a personal loan mostly comes down to your credit score for what the lender might offer, but as mentioned, it can also depend on the amount requested, repayments terms and debt to income (DTI) ratio.

What’s a Good Annual Percentage Rate on a Personal Loan?

The actual APR or annual percentage rate for a personal loan is relative to your own financial situation, including the amount you want to borrow, your credit score, and even your debt to income ratio. Having a strong credit score is clearly one of the benefits when applying for personal loans that will impact what sort of APR might be offered and why it might be different than the interest rate. 

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Comparing Personal Loans

It isn’t always about the amount you want, but what you can afford. 

This also has a lot to do with what you might be approved for as well. 

When a lender looks at your income, debt, credit history and score, they’re looking to determine the level of risk the borrower might be, and their ability to repay the loan. 

On average, online lenders tend to provide lower APRs than conventional brick-and-mortar banks. This is likely to do with less overhead and the savings are passed on to the consumer.

One other approach that is worth considering when you are thinking about a personal loan is whether it might be worthwhile to wait and try and improve your credit score. Depending where it currently resides, taking a few months to try and improve from a fair to good credit score can mean significant savings for what you might qualify for when it comes to interest rates and APR.

 

Making sense of finance one day at a time.

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