Quick Guide to Instalment Loans in CanadaJuly 09, 2021
According to a survey from the Financial Planning Standards Council, one in three Canadians say they don’t have enough cash to cover an unexpected expense. Luckily, an instalment loan can take the financial strain off your shoulders when times get tough. Discover what an instalment loan is, how it can lift your credit score, and how to get approved for one today.
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What is an instalment loan?
An instalment loan is when you receive a lump sum of money and agree to make equal payments over a fixed term. Payments include interest (and fees in some cases) and are usually made once a month. Instalment loans (instalment credit) differ from credit cards and lines of credit (revolving credit) because they have an end date, so you know right from the get-go when the loan will be fully repaid.
There are four main types of instalment loans:
- Mortgage: Used to purchase property with terms usually lasting 15 or 30 years. You can choose between a fixed or adjustable interest rate.
- Car loan: Financing specifically for the purpose of purchasing a vehicle. Interest rates for this type of loan generally range between 3% and 15%.
- Student loan: Can cover education expenses and is available from the government and private lenders.
- Personal loan: Can be put towards any kind of expense and often used to consolidate debt. Personal loans can be secured (backed by collateral) or unsecured (rely on your credit rating).
You can get an instalment loan from:
- Traditional banks: This is an excellent place to start if you have good credit. If you need an instalment loan, visit your personal bank first as they may have low interest rates for current customers.
- Credit unions: Credit unions typically offer better rates than traditional banks. Keep in mind you’ll need to become a member of the credit union to take advantage of its products.
- Online lenders: Trusted online lenders are emerging as the best option if your credit isn’t great and you need money quick. You can shop around for the best rates and apply for a loan from the comfort of home.
What are the benefits of instalment loans?
- Predictable monthly payments: Credit cards can be hard to manage as the amount on your statement can change depending on how much you spend. With instalment loans, your payments stay the same so you know exactly how much you owe every month. This offers more predictability and makes it easier to budget. Most instalment loans also use fixed interest rates which provide peace of mind as you don’t have to worry about the rate increase.
- Flexible payment schedules: Customizable repayment plans give you flexibility and freedom. You can pick a longer term if you want to make lower monthly payments or agree to a shorter period to save on interest.
- Quick access to funds: You’ll most likely need money fast when a financial crisis hits. Lenders understand this which is why funds are normally released within 24 hours or less upon approval.
- Relaxed eligibility requirements: It’s easy to qualify for an instalment loan in Canada with a trusted lender, especially online. You need to be a Canadian resident, at least 18 years of age, possess an active bank account, and have proof of your income, residence, and expenses.
- Credit building: Unlike payday loans, instalment loans can help you build credit if you use them wisely. Every on-time payment will be reported to the credit bureaus and this activity will help boost your credit score.
How can an instalment loan help my credit rating?
According to the Equifax credit bureau, the five main factors involved in calculating a credit score are payment history, credit utilization, credit history, inquiries, and public records.
Instalment loans can help you improve your credit because they allow you to:
- Make payments on time: At 35%, payment history has the most significant impact on your credit and most instalment loan lenders report this activity to credit bureaus. This means your credit score will increase if you consistently send your payments before the due date.
- Keep your credit utilization low: Do you have credit card debt? If so, moving it to an instalment loan can benefit your credit rating because it decreases your credit utilization ratio. Credit utilization accounts for 30% of your credit score calculation. A low credit utilization rate indicates you’re responsible with credit and not overspending.
- Have a healthy combination of debt: The different types of accounts you hold play a small part in determining your credit score. If you only have credit cards, adding an instalment loan in the mix can help diversify your credit. It also shows you’re a smart borrower as credit cards normally have much higher interest rates than instalment loans.
How do I pay off an instalment loan?
Flexible repayment schedules are one of the best things about personal instalment loans. You can rebuild your credit by paying off a loan in a short amount of time or take up to 60 months if you need it. Once you agree to a repayment plan, it’s important to stick to it as missed payments will negatively impact your credit score.
There are many saving techniques and tools you can use to make sure you never miss a payment:
- Get in the habit of tracking your spending so you can identify areas of improvement.
- Create financial goals and monitor your progress using budgeting apps like Mint, You Need a Budget, and Wally.
- Reduce impulsive credit card purchases by using a cash-only budgeting method like the envelope system.
- Follow the 50/20/30 rule which allocates 50% of your income towards necessities, 20% for financial goals, and 30% for leisure.
- Set up automatic transfers so that a portion of your income goes into your savings account every payday. This way, you will always have sufficient funds in your account to cover loan repayments.
Can I get an instalment loan with no credit check?
It is possible to get an instalment loan without a credit check but this route should be avoided at all costs. Lenders who promise guaranteed approval without performing credit checks usually don’t have your best interests at heart. They are known to target people with poor credit and use predatory tactics such as hidden fees to put the borrower at a huge disadvantage.
It’s best to stay away from payday loans too if one of your goals is to build credit. In most cases, payday lenders don’t send your payment history to credit bureaus so the loan will not help your credit rating, even if you repay on time.
Can I get an instalment loan with bad credit?
Get an instalment loan fast with Spring Financial
From vehicle repairs and medical bills to education expenses and dream vacations, Spring Financial is here to support you at every stage of your life. Spring Financial is committed to helping you improve your credit by providing stress-free instalment loans with fixed interest rates and flexible repayment schedules.
What sets Spring Financial apart from other lenders:
- Convenient instalment loans: Get approved for loans up to $35,000 without ever having to step inside a bank.
- Fast funding: Apply online in minutes and get funds sent directly to your bank account on the same day or within 24 hours.
- Customizable repayment schedules: Payment plans are flexible with terms between nine to 60 months.
- Trusted lender: Spring Financial is trusted by Canadians across the country – just check out the glowing reviews on Trustpilot and Feefo.
- No hidden costs: You never have to worry about hidden costs like application fees or maintenance charges, ever.
- No-hassle instalment loans for everyone: It doesn’t matter if you’re new to credit or have filed for bankruptcy, Spring Financial can help.
What are you waiting for? Get approved for an instalment loan today by applying online or calling 1-888-556-6441.