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Are Personal Loans Available in Canada?

Canadians have several personal loan options available

By

Karon Warren

Published September 21, 2023

Reviewed by Andrew Schmidt

Fact checked by

Vikki Velasquez

Borrowers in Canada can take advantage of several personal loan options to fit their needs. If you meet the lender requirements, you can choose from secured or unsecured personal loans to use for a variety of purposes.

Learn more about the availability of personal loans in Canada.

Key Takeaways

Personal loans, both secured and unsecured, are available in Canada.
Typical personal loans in Canada range from about $100 to $50,000.
Federally regulated lenders may not charge for optional services and/or associated fees unless they get your permission.
Personal loan proceeds may be provided in a variety of ways, such as through a bank deposit or a prepaid card.

How Personal Loans Work in Canada

Personal loans in Canada provide you with a lump sum of money, which you pay back in installments over a set period of time along with interest. Interest rates may be fixed, meaning they stay the same for the life of the loan, or variable, meaning they change periodically during the loan term.

Like most personal loans, personal loans in Canada have loan terms that typically range from a few months to several years, and their amounts range from about $100 to $50,000.

Personal loans can be used for a variety of purposes, such as buying a car, paying for a wedding, covering emergency expenses, or consolidating credit card debt.

Personal Loan Options in Canada

The two main types of personal loans are secured, which require collateral, and unsecured, which does not require collateral.

Secured Loans

A secured loan requires collateral, which is an asset like your car or home that the lender can seize to offset losses if you fail to make payments. This essentially lowers the lending risk. Common types of secured loans include:

Secured personal loan
Title loan (the borrower uses a car loan title as collateral)
Pawn loan (the borrower pawns an asset, such as jewelry, as collateral)

Unsecured Loans

Unsecured loans do not require collateral to guarantee the loan. If you default on an unsecured loan, the lender can enter into collection proceedings, including filing a lawsuit against you. However, they cannot seize your assets.

Another option that lenders can use to collect on a defaulted unsecured loan is right of offset. Typically included in the loan agreement, right of offset allows the lender to take money from other accounts you hold with them, such as checking or savings accounts. They also can take funds from accounts you have with the lender’s affiliates. This applies to accounts in your name as well as joint accounts you share with others.

Using right of offset, lenders can take funds without notifying you or getting your permission. They also may take all the funds in your account, which could result in non-sufficient funds fees for checks or other attempted debits.

How to Find Personal Loans

Personal loans are available from financial institutions like banks and credit unions. You can also get certain types of personal loans in Canada from nontraditional lenders, such as title loan companies, pawnshops, payday lenders, and private lenders.

Applying for a Personal Loan in Canada

When applying for a personal loan in Canada, you can start by shopping for the best loan by comparing rates. Here are more key steps.

Shop Around for Best Loan Terms

Compare loan offers from several lenders. The key factors to compare include the interest rate, the loan terms, and fees. Keep in mind that the shorter the loan term, the less you will pay in interest. Also, ask for an itemized list of fees so you understand the charges.

Note

Under Canadian law, lenders cannot charge more than 60% interest annually. That amount includes not only interest but also all fees and associated costs.

Provide Personal Information

Once you choose a lender, you will need to provide basic information, including your income and permanent address. You also will need a bank account and will need to show a government-issued identification, along with any other documents that the lender requires.

Wait for Approval

When you apply for a personal loan, the lender will likely run a credit check to learn about your risk as a borrower. The lender will review your credit report, which is a summary of your credit history, and check your credit score. Your credit score is a three-digit number that reflects your ability to manage money. The two main credit bureaus in Canada that provide your credit score are Equifax and TransUnion.

Credit scores are used to determine if a lender will approve your loan as well as what interest rate is charged on the loan. Typically, the better your credit score is, the lower the interest rate will be on the loan.

Review the Loan Papers

If you are approved for a personal loan, review all paperwork on the loan to make sure you agree to the terms. Do not sign the loan contract if the terms are not acceptable.

Loan terms to review include:

Total loan amount
Interest rate (fixed or variable)
Length of loan
All fees and service charges
Optional services you agreed to have

Ensure there are no unexpected charges, such as for optional loan insurance. By Canadian law, federally regulated banks cannot charge for optional loan insurance unless you explicitly agree.

Get Your Money

Next, you will receive the loan funds, which can be provided in one of several ways:

Cash
Deposited in your bank account
Sent through an electronic funds transfer
Sent directly to named lenders, such as to pay off another loan or to consolidate credit card debt
Prepaid card (could incur fees to activate and/or use)

Alternatives to a Personal Loan

If you don’t qualify for a personal loan or prefer a different method of financing, you can turn to other potential funding options like personal lines of credit, credit cards, or borrowing from others.

Personal Line of Credit

A personal line of credit shares similarities with a personal loan, but it has key differences. While a personal loan has a fixed loan amount, a personal line of credit allows you to borrow the amount of money you need, which could be less than the amount you are approved to borrow. When you repay what you have borrowed on a line of credit, that credit becomes available to you again.

You only pay interest on the amount you borrow with a line of credit, not on the entire amount you are approved to borrow. Like a personal loan, you are required to make minimum payments toward the balance. You also can pay off the entire balance anytime.

Credit Cards

If you have credit available on your credit cards, you can charge purchases to them. However, interest rates on credit cards are typically significantly higher than those on personal loans, so you will likely pay much more in interest if you don’t pay off the balances each month.

If you are late making a credit card payment, you also will incur substantial late fees that could increase your total debt and lower your credit score.

Borrow from Family or Friends

When borrowing from family or friends, you likely won’t have to pay interest or associated fees, and you may not have an exact repayment date. You also may not even have to make payments. However, if you don’t repay the loan in a timely manner, it could create a tense situation with loved ones.

If you do borrow from family or friends, consider putting the loan terms in writing, including a date for paying off the balance.

What Makes You Eligible for a Personal Loan in Canada?

Loan requirements for a personal loan in Canada include having an income, a permanent address, and a bank account. Lenders will check your credit history and credit score to determine your risk as a borrower before approving you for a loan. Each lender has their own minimum credit score requirements.

What Is the Easiest Way to Borrow Money in Canada?

For many people, borrowing money from banks or credit unions is easy, provided that they meet the lending requirements. To apply for a personal loan, fill out an application with a bank, credit union, or alternative lender and submit any documents they request, such as an ID or proof of income.

Can a Noncitizen Get a Loan in Canada?

You don’t have to be a citizen to get a loan in Canada. You do have to be a permanent resident with a valid permanent resident card.

The Bottom Line

For qualified borrowers, there are several personal loan options in Canada. These include both secured and unsecured loans, which can be used for many different purposes.

Weigh the pros and cons of personal loans as they relate to your situation before you use one to finance your expenses.

Article Sources

Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our editorial policy.

Government of Canada. “Personal Loans.”
Government of Canada. “When a Financial Institution Can Take Money from Your Account.”
Government of Canada. “Getting Your Credit Report and Credit Score.”
Government of Canada. “Credit Report and Score Basics.”
Government of Canada. “Loan Insurance: Know Your Rights.”
Government of Canada. “Lines of Credit.”
Canadian Imperial Bank of Commerce. “How to Avoid Missing Credit Card Payments,” select “What happens if I miss a credit card payment?”
Government of Canada, Justice Laws Website. “Immigration and Refugee Protection Regulations (SOR/2002-227): Types of Loans.”

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