Personal Loans in British Columbia
We have all been there. Sometimes there just isn’t enough money to go around and you need a little help. That’s where a personal loan comes in. It can help you escape a challenging situation and improve your financial health. Whether you have good credit or bad credit, a personal loan can be a great […]
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We have all been there. Sometimes there just isn’t enough money to go around and you need a little help. That’s where a personal loan comes in. It can help you escape a challenging situation and improve your financial health. Whether you have good credit or bad credit, a personal loan can be a great choice and is much more accessible than you think. Lenders make their money off your interest payments, so, therefore, they want to lend you money. How much interest you pay back on the loan, however, depends on your financial history. Those with lower credit scores will likely have higher interest rates and have more to pay back. Really, no matter your situation, there is some sort of option to figure out a personal loan (or alternative options) and get you the money you need.
Our Personal Loan Application Process
What is required to get a personal loan in BC?
To be honest, getting a loan in British Columbia isn’t that much different than getting a loan in the rest of Canada. Lenders require the borrower to:
- Be at least 19 years old
- Have a steady income
- Be able to afford loan payments
- An active bank account
- Be a Canadian resident or have a permanent resident card
- A decent credit score (this varies depending on the lender)
If you meet these criteria, then the lender will require some documentation from you to be able to offer you a loan amount.
- Proof of Income – This usually consists of 1-2 pay stubs that you received in the last 90 days and at least 3 months of bank statements.
- Proof of Address – In BC, this can be any form of Valid Government ID like a Driver’s License or a passport.
How to Qualify for a personal loan in BC
In order to qualify for the personal loan, the lender performs a hard credit check. This not only shows them your credit score but also your debt-to-income (DTI) ratio. In order to qualify most lenders, require you to have a debt-to-income ratio of less than 45% while some will go up to 50%.
Essentially your DTI is how much money you bring out per month compared to your minimum monthly debt payments. Most people think it is the total loan amount compared to total income, but it isn’t. That’s why with lower interest rates and lower payments you can borrow more money.
Some lenders also require a minimum monthly income in order to qualify. In BC, this can range anywhere from $1200 to $2000. It is also important this does not have to be employment income, there are many kinds of income that are accepted but some of those do have stipulations. Here are some examples:
- Employment Insurance
- Disability Assistance/Disability Pension
- Structured Settlement
- WCB (Workplace Compensation)
As long as you meet the minimum (if there is one) and have a stable income you can qualify. However, even though self-employment income is accepted, there are some stipulations. With most lenders, 2 years of NOA’s (Notice of Assessments) are needed in order to qualify if it is your main source of income. If it is secondary income, the lender may only require 1 NOA to include the income.
Employment Insurance is approved but only in some instances. Lenders usually only approve it if you are seasonal EI or medical if there is an indication that you are going back to work. That makes the income more reliable to the lender. If the reason for EI is a layoff with no job lined up, they may decline the loan based on the fact there is no guarantee they will get their money back.
Then there is the question of Social Assistance and Child Tax. While these are accepted income sources as secondary sources of income it is difficult to get a loan with just either of these sources. Some lenders will not accept them; however, you are able to get payday loans.
Types of Loans in British Columbia
In BC, there are 3 main types of personal loans. These are:
- Unsecured Loans
- Secured Loans
- Payday Loans
Unsecured loans are cash loans. The lender provides you cash up front with the understanding you will pay it back in the agreed-upon parameters. These types of loans are flexible with the loan term and the interest rates. They are generally the most popular type of personal loan and are available through most financial institutions as well as online lenders.
Secured loans are similar to unsecured loans except they require collateral. Popular types of secured loans are car loans and home equity loans.
Lastly, there are payday loans. These types of loans often require payment for a short period of time. However, while unsecured personal loans start at $500, payday loans can lend you less than $500. They generally have high interest rates and very few qualifications. They are mostly used for quick cash to cover unexpected expenses.
Which type of personal loan you end up going with depends on many different qualifying factors, the main one being your credit score.
What credit score is needed to be approved?
To get approved for a personal loan, the higher the credit score the better, but that does not mean that you can’t get a loan with a lower credit score. It ultimately depends on the lender and how much interest you are willing to pay.
In Canada, credit scores range from 300-900 with 30 being the lowest and 900 being the highest. This is then broken into different categories. The categories help to give you a good idea of where you are at and what you need to improve on.
If you fall in the categories of Excellent, Very Good, or even good; your chances are pretty good of getting a personal loan with a lower interest rate. These rates are usually from traditional lenders like Banks and Credit Unions.
If your credit score falls into the Fair category, you will most likely need to go through alternative lenders. One of these would be an online lender like Spring Financial. It’s possible you would qualify for this with poor credit as well, but you may have to go for a payday loan. You may have also referred to these as bad credit loans.
How does a bad credit personal loan work?
A bad credit loan is typically not through alternative lenders such as online lenders and payday loan companies. Many people are surprised to hear they can still get a loan with bad credit, but it is important to remember that the interest rate on these loans can be quite high. There are a few different types of bad credit loans:
- Unsecured personal loan – The lender lends you money without collateral but there is a higher interest rate.
- Secured personal loan – The lender will lend you money if an asset, like a vehicle, is put up for collateral. These often have a lower interest rate than unsecured bad credit loans, but you do risk losing the asset if the loan isn’t paid off.
- Payday loan – These loans give you cash for a cost of 300%+ and often have a shorter payback time.
- Vehicle title loan – These types of loans put your car up as collateral to receive cash. They are a type of secure loan.
If possible, it is recommended to get an unsecured bad credit loan or a bad credit loan that improves your credit score when you make the monthly payments. This can help to avoid high interest rates in the future. Payday loans and vehicle title loans do not positively impact your credit score.
Can you get a personal loan without a credit check?
There are such things as no credit check loans, however, because they don’t check your credit, they often don’t positively impact your credit score. Therefore, you can end up stuck in the cycle of constantly borrowing.
Payday loans, some personal loans, and vehicle title loans can all be gotten without a credit check. This does mean you will get approved if you apply though. They all have some minimum factors that apply.
Depending on where you apply you must be 18 years of age (some are 19); have a fixed address and some sort of income. If you meet these requirements, then in most cases you will get approval. However, if you can avoid this option it is recommended. These types of loans can end up costing you much more than you borrow and make it difficult to get a loan that provides a lower interest rate because, even though they don’t contribute to your credit score positively, they still impact your debt-to-income ratio.
How much impact do loans really have on a credit score?
Just like your financial health, your credit health is also important. Keeping a high credit score can be helpful if you need some extra money. A personal loan, also known as an installment loan, is one of the most powerful ways to build up your credit or keep it in the good/ excellent credit categories. This is because a lender is giving you a loan without any collateral. The lender is giving you cash with the premise you will pay it back, and every positive payment you make increases your credit score. That being said, when you default on a personal loan it can have a very negative impact on your credit so it is important to verify you can afford a personal loan before getting one.
Lenders look for a diverse amount of credit on your credit report. They recommend having at least two active tradelines (pieces of credit) on your report at one time. Preferably two different types of credit. This shows lenders’ financial responsibility as well as your ability to handle different types of credit making a loan approval much more likely. Especially at a lower interest rate.
Certain types of credit like payday loans and vehicle title loans do not report positive payments to the credit bureau so they would not count as an active tradeline on your credit report. These are important things to keep in mind when trying to improve your credit scores. Certain companies also provide products such as secured credit cards and secured personal loans. These products show up as an active tradeline on your account and increase your credit score over time with positive payments. An example of this is The Foundation provided by Spring Financial.
Even though the minimum is 2 diverse types of credit on your report, having 3 or 4 can make an even larger difference. For example: Having an active phone bill with no missed payments, a credit card, a line of credit and a personal loan would be considered a diverse credit report.
What are the different credit types and how do they differ?
There are 4 different types of credit in Canada.
- Revolving – This type of credit is things like credit cards or lines of credit. They are considered revolving because you can use them and pay them off as many times as you like in anytime frame as long as you make your minimum payments. It is recommended to keep revolving credit up to 35% of your limit to avoid hurting your credit score.
- Installment – As discussed above installment loans are cash loans to be paid over an allotted period of time.
- Open Accounts – These are things like your cell phone bill that you get billed for at the end of the month. These types of credit can’t build your credit score, but they can hurt it if you miss a payment.
- Mortgage – A mortgage is a type of installment loan that uses the purchased dwelling as collateral. Mortgages also offer a choice between fixed and variable interest rates while other types of installment loans don’t.
How much can you get from a personal loan in BC?
In British Columbia, the average you can get for a personal loan is between $500-$35,000. Just like the rest of Canada, the amount you are approved for is based on your credit score as well as your ability to afford the loan. It is possible to get a loan of $50,000 or sometimes even up to $100,000 but that depends on what the loan is needed for.
Most personal loans that go above $35,000 are secured loans. This just means that an asset is used as collateral. Banks tend to lend more money when collateral is involved so they can guarantee a return on their investment. Some examples would be a car loan or a home equity loan.
It is important to remember though, that just because you are approved for a loan amount, that doesn’t mean you have to take it. That is just the maximum amount the lender has approved you for so you can pick a lower loan amount if that is all you need. You can also decline the loan if you feel the payments are too much or the interest rate is too high.
Receiving a Personal Loan
Once you have been approved for the loan and signed the documents, the then lender sends you the money. There are a few different ways this happens.
If you get the loan with your bank or credit union, the money is deposited directly into your account. With an online lender, the money is either direct deposited into your account or e-transferred to you. Keep in mind that only up to $10,000 can be e-transferred in BC, so anything above that will most likely be direct deposited.
The main difference between these methods is that direct deposit takes 1-2 business days to show up in your account whereas an E-transfer only takes about an hour at most. If the money is being deposited into your account from a bank or credit union, then it should be transferred right away.
What about paying the loan back?
Well, paying back a personal loan is relatively easy. When you do the documents for a personal loan, a direct deposit form is supplied to the lender with your banking information. This allows the lender to take the agreed-upon monthly payment out of your account on the specified day(s). This day is normally your payday so, depending on when you get paid, the payments can be made monthly, biweekly, or semi-monthly.
If you want to pay the loan off early or make extra payments on the principal, there should be an account number on your documents. You can add the lender as a payee on your online banking or through the bank. Once you have added the lender and the account, then you can make payments whenever you like.
Be sure to keep in mind that, while most personal loans are open term, some are not, so don’t make an extra payment or pay it off early if it is because you will be penalized. You can always discuss that with your lender.
Average Interest rates on personal loans in British Columbia
This really depends on your financial situation and your credit score, but they can range anywhere from 5%-46%. The average personal loan is between 5% and 20% but if you have good credit (700+) the average interest rate from a traditional lender is between 5% and 7%.
Interest rates on Personal Loans are based on an APR which means an Annual Percentage rate. That means that is the total interest rate per year. Generally, the Interest rate is divided by 12 and you are charged that amount of interest per month on the loan.
For example, the monthly interest on a loan of 5.2% is 0.43% per month but the monthly interest on a loan of 46% is 3.38% per month. While these numbers may seem small, they add up quite quickly.
The total cost of a personal loan
This is a hard number to determine based on the amount of the loan and the interest rate. Lower interest rates equal lower payments and a lower final cost of the loan. Let’s take a look at a few examples of a $5000 loan but different interest rates.
|Loan Amount||Length||Interest rate||Monthly Payment||Total Cost|
As you can see above the interest rate makes a big difference in your total loan cost. Keep in mind these interest rates are on the lower side and usually given to those with a credit score of 650 or higher. Let’s take a look at the same parameters but with a higher interest rate.
|Loan Amount||Length||Interest Rate||Monthly Payment||Total Cost|
As you can see when you get to the higher interest rates, you are almost paying double the amount that you borrowed. While the monthly payment is only $100 more than the lowest interest rate, the total cost is over $4000 more. That is why it is important to not only look at the monthly payment but the total loan cost as well.
Common reasons to get a personal loan
While there are many reasons to get a personal loan, most companies do require a reason on the loan application. The likelihood of the reason affecting your loan approval is small since there are so many factors that make a difference. It is possible some companies won’t approve a loan for something like starting a business, but again that is rare. Most lending companies just want the reason for the loan so they can track it for marketing purposes.
Some of the most common reasons in BC are:
- Debt Consolidation
- Home Renovations
- Paying Bills
- Purchasing a Vehicle
- Vehicle Repairs
- Emergency Expenses
Because personal loans often have a lower interest rate than other types of credit, they allow you to spend less money while helping with your financial health. There are other options like credit cards and lines of credit but those always aren’t the best option for everyone. It ultimately depends on the amount that you need, and the reasons listed above tend to be higher amounts.
Is it better to get a Personal Loan or use a Credit Card?
When deciding if you need to use a personal loan or a credit card there are a few factors you should consider:
- Is it a large purchase or a small purchase?
- How quickly are you able to pay it off?
- What option will cost you less?
- Do you earn rewards with your credit card?
In some cases, it can make more sense to use a credit card. Credit cards are meant for smaller purchases and to be paid off over time. The thing is though, that credit cards do have high interest rates. If you are earning points off with the purchase and can pay it off quite quickly, that might be the better option for you. If things are tight and you are more likely to pay off a personal loan, that would save you a lot of money in interest.
Credit cards do have a revolving balance, unlike personal loans. Because of this, having a high balance on your credit card can have a negative impact on your credit score whereas, making payments on a personal loan can have a positive impact on your personal loan.
Ultimately, it depends on your financial situation and on what option you choose. Sometimes, you just can’t get a personal loan and a credit card is your only option. That’s okay too. Just make a structured plan to pay off the credit card to save yourself money.
Can you get a loan with Spring Financial in BC?
Spring Financial offers personal loans in BC and across Canada, as well as other financial products. You can apply in as little as 3 minutes right from the comfort of your own home. We offer personal loans ranging from $500-$15,000 that you receive in as fast as a few hours. All of our products also report to both credit bureaus (TransUnion and Equifax). No matter your credit score, we can find an option that works for you and your financial situation while improving your credit score at the same time. Apply online or speak to one of our agents via chat.