Personal loans allow you to borrow a fixed amount of money and pay it back over a certain period. Lenders may also refer to them as long-term financing plans, instalment loans and consumer loans. You must pay back the full amount, including interest and any applicable fees. You make regular payments, called instalments. You may use personal loans for specific purchases such as home renovations, furniture and cars. You may also use them to consolidate other debts with higher interest rates. Most personal loans range from $100 to $50,000 with a term between 6 and 60 months. Personal loans are available from lenders, such as banks and credit unions. Your lender may offer you a loan for more than what you need. Be careful not to borrow more than you’re able to afford. Make sure that the loan meets your needs. If your lender is a federally regulated bank, they must offer and sell you products and services that are appropriate for you, based on your circumstances and financial needs. They also must tell you if they’ve assessed that a product or service isn’t appropriate for you. Take the time to describe your financial situation to ensure you get the right product. Don't hesitate to ask questions and make sure you understand the personal loan you have or want.
Most lenders run a credit check when you apply for a personal loan. Your credit report helps them evaluate your ability to repay a loan. They’ll likely consider your debts as well. Your credit report, credit score and debts may affect your loan options. For example, the interest rate and type of loan you qualify for.
Lenders usually give you the money for your loan in one of the following ways:
There may be a cost to activate and use a prepaid card.
Before you sign a personal loan agreement, make sure you understand the terms and conditions. Ask the lender about anything you don’t understand.
Federally regulated lenders like banks must give you the following information when getting a personal loan:
Other lenders, like some credit unions, are under provincial or territorial regulation. They may not need to provide this information. Contact your provincial or territorial Consumer Affairs office to learn more about lending rules.
There are 2 types of personal loans, secured loans and unsecured loans.
A secured personal loan uses an asset, such as your car, as a collateral. It’s a promise to your lender that you’ll pay back the loan. If you’re unable to make your payments, the lender may take the asset from you.
There are various kinds of secured loans, including:
An unsecured personal loan is a loan that doesn’t require collateral. If you don’t make your payments, your lender may sue you. They also have other options, such as taking money from your account.
Borrowing money with a personal loan may cost a lot of money. Make sure to consider the interest rate, fees and term of the loan.
When you take out a personal loan, your lender gives you a quote for your regular payment amount. To get to this amount, they calculate the total cost of the loan. They divide this amount by the number of payments based on the length of the term.
The total cost of the loan includes:
Make sure you understand the total cost of a loan before making a decision. Multiply the payment amount by the number of payments in your term.
For example, suppose you want to get a personal loan for $2,000. The interest rate is 19.99% on a monthly payment plan. The example below shows the total cost of a loan with different terms.
| Option | Monthly payment | Loan term | Total cost of the loan |
|---|---|---|---|
| 1 | $185 | 12 | $2,220 |
| 2 | $75 | 36 | $2,700 |
| 3 | $53 | 60 | $3,180 |
This example shows that the longer you take to pay off your loan, the more expensive it’ll be.
The interest rate on a personal loan impacts the overall cost of the loan. By law, lenders may not charge more than 60% interest annually. This includes all fees, costs and interest that you’ll pay to get the loan.
Suppose you want to get a personal loan of $2,000 for 36 months. The example below shows the total cost of the loan with different interest rates.
| Option | Interest rate | Monthly payment | Total cost of the loan |
|---|---|---|---|
| 1 | 8.99% | $64 | $2,304 |
| 2 | 19.99% | $75 | $2,700 |
| 3 | 39.99% | $97 | $3,492 |
| 4 | 59.99% | $121 | $4,356 |
This example shows that a higher interest rate may significantly increase the total cost of your personal loan.
The interest rate a lender offers you may vary depending on:
You don’t have to take loan insurance with a personal loan. Your lender may offer optional creditor loan insurance for your personal loan.
With a personal loan, you agree to make regular payments. Most lenders will ask for your banking information to take the money directly from your account (pre-authorized debit).
Some lenders will send information about your personal loan payments to the credit bureaus.
Lenders may allow you to make extra payments to pay off your loan faster. They may also allow you to pay off your loan before the end of the term without a penalty. Some lenders may charge a fee if you pay off your loan early.
You may also be able to renegotiate the terms of your personal loan agreement with your lender. This may help you manage your budget if your financial situation changes. There may be a fee for this service.
Before you take out a personal loan, you should consider your situation and your ability to pay it back. If you’re having trouble making your payments, contact your lender.
If you think your bank account balance won’t cover your loan payment, you may consider overdraft protection. It covers the amount of a transaction when you don’t have enough money in your bank account.
Your financial institution may send you an electronic alert when:
These alerts may help you manage your day-to-day finances and avoid fees.
If you have a complaint related to your personal loan, contact your lender.
All federally regulated financial institutions, such as banks, must have a procedure for handling complaints in place.
If your lender isn’t federally regulated, contact the regulator in your province or territory.