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Personal Loans in Ontario

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    If you are in need of any extra money, a personal loan is a good option to consider. Personal loans are flexible and are available in larger amounts than most credit cards. They also have more competitive interest rates and credit-building opportunities. Honestly, the positives are good as far as debt is concerned. In reality, though, any form of debt is scary so it is important to weigh your options when deciding the best way to borrow money. You need to consider the different loan options available to you, your credit score and financial history as well as your income. These factors will determine if a personal loan is a good option for you and, if so, what type of personal loan will work the best. While most provinces in Canada have similar requirements when it comes to applying for and getting a personal loan, there are a few differences. Let’s go over what it takes to get a personal loan in Ontario. 

    Our Personal Loan Application Process

    Types of Personal loan

    Just like in the rest of Canada, there are 3 types of personal loans that are available to you in Ontario. There are secured personal loans, unsecured personal loans, and payday loans. Your financial situation, credit score, and debt-to-income ratio make a difference in what time of personal loan you would get.

    Unsecured loans are the most difficult kind of personal loan to obtain but they also have the most credit-building power. Because the lender is trusting you by giving you cash and asking for nothing in return, a higher credit score and lower debt-to-income ratio give them a good indication that they will get their money back. In some cases, the lender gives the loan a higher interest rate to mitigate their overall risk factors. 

    Secured loans are the easiest type of personal loan to obtain if you don’t count payday loans. Due to the fact that the lender requires collateral because they agree to give you the cash, they are insuring their investment. Because they can seize your collateral if you end up defaulting on the loan, be sure you can pay the lender back before putting your assets (such as a vehicle) up for collateral. 

    Lastly there are payday loans. While these are technically a type of unsecured loan, they are slightly different from a loan you would get from a traditional lender or even an online lender. A payday loan is essentially a cash loan that you pay back on payday. They have exorbitantly high interest rates anywhere between, 300%-500%. Payday loans are only recommended if you really need money, and an unsecured or secured loan isn’t an option.

    How do I get a personal loan in Ontario?

    Just like many other provinces Ontario requires a few things in order to get approved for a personal loan. Of course, this ultimately depends on the type of loan you are applying for as well. Each type of loan will require a few different things but, in general, they require:

    • A hard Credit Check
    • Proof of Income
    • Proof of Address
    • Valid Government ID

    What credit score is needed for a personal loan?

    The credit score needed for a personal loan really depends on the lender and the amount you are looking for. Traditional lenders like banks and credit unions require you to have good credit Since credit can range anywhere from 300- to 900, a credit of 660 and up is considered to be good credit. Good credit will often get a higher loan amount and a lower interest rate. 

    Online lenders often accept credit scores as low as 500 and sometimes even lower. Most payday loan companies don’t even check your credit as long as you can prove your income. 

    Whenever a lender does a credit check, in order to get you approved for a loan, a hard credit check has to be done. While a soft credit check only shows a rough indication of your credit score, a hard check shows your financial history such as bad debt write-offs, collections, consumer proposals, and bankruptcy. 

    Don’t worry though, just because your credit check does show the credit mistakes you made in the past, that doesn’t mean you won’t get approved. You may not get as much money as needed but as long as you make your payments consistently you should get a better approval the next time you apply. 

    What credit score is needed to get a $5000 loan?

    To get a loan of $5000, it is recommended to have a credit score of at least 600, this can vary per lender, and it can be slightly lower based on your credit history. For the most part though, an average score of 600 should get you approved.

    What credit score is needed to get a $10,000 loan?

    With a $10,000 loan, a score of 640 or higher is needed. Again, this can vary per lender. 

    What credit score is needed to get a $20,000 loan?

    A slightly higher credit score of 660 is needed for a $20,000 loan. 

    What credit score is needed to get a $30,000 loan?

    Lastly, for a $30,000 loan, a credit score of 660 is needed again even though higher is preferred. 

    Is there a minimum salary required for a personal loan?

    Most lenders do require a minimum salary and that is normally anywhere between $1200-$1500 per month. While this is the most common it is not always the case. Alternative lenders can sometimes approve you no matter what your monthly income is as long as you can prove you can make the monthly payments. Payday loans, on the other hand, do not check your income at all, as long as you are receiving some sort of income you can get approved. 

    What type of proof of income is required?

    Most lenders require 1-2 of your most recent paystubs/statements that have been given within the last 90 days. Depending on how long you have worked for the employer or been receiving the income a letter from the employer/issuer could be required. They also require up to 3 months’ worth of bank statements. Not only does this prove your income deposits, but it also lets the lender verify you make your payments on time and see any debt you still have.

    Proof of Address

    Proof of address is anything that proves you live at the address you say you do. It can be any current bill within the last 90 days. Things like hydro bills and credit card statements work well. A valid driver’s license can also work. 

    Valid Government ID

    For all lenders, you must prove your identity to apply for a personal loan. In Ontario, you can use any form of government ID (such as a driver’s license or passport) except your health card. It is not accepted when applying for a personal loan. 

    In Ontario, unlike other provinces in Canada, this form of identity is only to be kept on file with organizations involved with health care, and any other business is not permitted to keep them on file. While it is not a problem for you to show it to them, they will ask for another form of Identification.

    How to get an unsecured loan

    To get a cash loan, lenders often have a lot of documentation they require. In order to calculate how much money they can lend you and the appropriate interest rate, lenders ask for regular documentation like your proof of income and proof of address. They also use this documentation as well as your credit check to calculate your debt-to-income ratio.

    It is important to remember, though, that your debt-to-income ratio does not refer to the total amount you owe. It just refers to your monthly payments. They basically use these monthly payments and your total income to calculate a loan amount that won’t go over 50% of your total income. This is when having lower monthly payments allows you to get higher loan approvals. 

    Once the lender can determine how much money you make, how much debt you have and your financial history they can either make you an offer for a loan or decline the application. 

    How to get a secured loan

    When you apply for a secured loan, the same information is required. The main difference is that the value of the asset you are using for collateral is also needed in order to determine the amount being lent to you. Depending on the type of secured loan you get, if you still owe money on the asset, that amount does not count towards how much you can borrow against the asset. 

    How to get a payday loan

    In Ontario, like the rest of Canada, all you need to apply for a payday loan is to be 18 years of age, have an active bank account (usually within the last 3 months), and provide a valid piece of ID. You do not need to prove how much money you make when getting a payday loan so you can often get higher amounts. The issue with this though is paying off the payday loan. 

    How much of a personal loan can you get in Ontario?

    Once you have applied for a personal loan the lender then takes these factors into account before giving you an offer. The average personal loan in Ontario ranges anywhere from $500 - $100,000 but it can be more depending. It also depends on what kind of personal loan you are getting. 

    How much can you get with an unsecured loan?

    Most cash loans range anywhere from $500-$50,000 although it is recommended to not borrow any more than you need. Lenders will give you the max amount you are approved for, and you can pick the amount that works for you. 

    How much can you get with a secured loan?

    Often times you can get higher loan amounts with a secured loan but that mostly depends on the asset you are using as collateral. There are a few different types of secured loans and with these come different loan amounts. 

    • Home Equity Loan – These types of loans can sometimes be way over 100,000 depending on the value of your home. The general rule with home equity loans is that you can borrow up to 80% of the value of your home minus whatever you owe on the mortgage. For example: If your house is worth $800,000 and you still owe $300,000 you can borrow up to 80% of $500,000 which is about $400,000.
    • Credit builder – loan With these loans, mostly used for those with bad credit, you pay back the amount you owe before you receive it. They aren’t ideal if you need money, but a great way to build your credit to receive money in the future. 
    • Vehicle title loan – For this type of loan, if you put your car up for collateral you can receive anywhere from 25%-50% of the worth of the vehicle. For example, a $20,000 car could get you a loan anywhere from $500-$10,000.
    • Pawn shop loan – These are similar to payday loans. The interest rate can be over 300% and the amount depends on what the collateral is being pawned. 
    • Loans secured by savings/investments – This is a type of loan that is often used for people who have a limited credit history, and the amount varies depending on the loan/investment amount that is being used as collateral. 

    Monthly payments with a Personal Loan

    Payments on a personal loan vary for everyone. It depends on the amount of the personal loan as well as the interest rate. The length of a personal loan can range anywhere from 9 months to 60 months and sometimes even longer. 

    On average, the shorter the repayment period on a loan the higher the loan payment but it ultimately depends on your individual situation. Interest rates vary anywhere from 5% to 45% depending on the lender also affecting the cost of your monthly payments. 

    For example, for a personal loan of $10,000 over a period of 60 months with an interest rate of 15%, the payments would be in the ballpark of $237.90 whereas the same amount over 60 months at 6.4% is around $195 per month. 

    Now let’s try these same two situations over a shorter period of time. With an interest rate of 15% and a loan of $10,000 over 36 months, the estimated monthly payments would be $347. With an interest rate of 6.4% and the same parameters, the estimated monthly payments would be around $306.

    As you can see, the payments vary depending on the circumstances. When going over the parameters of a loan with your lender, verify that you can afford the monthly payments and, keep in mind, that these payments are just for the loan and do not include any extra insurance or fees. Don’t be afraid to ask questions and get the correct breakdowns, you could end up saving yourself some money. 

    The fastest way to get a Personal Loan

    In Ontario, the fastest way to get a loan is by using an online lender. While getting a loan with traditional lenders can be fast, it generally takes anywhere from a day to a week, whereas some online lenders can get you the money within a few hours. 

    While online lenders can sometimes have higher interest rates than traditional lenders, you can’t dismiss the convenience factor, especially when depending on your credit situation, you may not even get approved by a traditional lender.

    The Advantages and Disadvantages of a Personal Loan

    When deciding whether or not to get a personal loan there are a lot of things to consider. First, let’s look at some of the advantages:

    • Credit building: One of the major positives of a personal loan is that making your payments on time increases your credit score. Having a good credit score is important for many things but especially for borrowing power. 
    • Lower interest rates: Another great thing about personal loans is that they have lower interest rates than other forms of debt like credit cards. This allows for a higher borrowing limit and lower payments. 
    • Flexible repayment schedule: Personal loans vary in length and payments. The longer the length of the loan the lower the payments making it easier to pay for larger loans. 
    • Easy to apply for: Most personal loans can be applied for in minutes with an online lender or traditional lenders. 

    However, like with anything, there are some disadvantages to personal loans.

    • Not open term: While most personal loans are open term, meaning you can pay them off at any time, not all are like that, so it is important to verify that before accepting a loan. 
    • Interest rates: With personal loans, depending on credit history, interest rates can be quite high, so it is important to keep that in mind when getting an offer, especially if the loan isn’t an open term. 
    • Hidden fees/insurances: A lot of the time there are fees and insurances attached to personal loans. A lot of the time these fees are optional and can be taken off if you ask. Be sure to read the fine print to see if that is the case. 
    • Rate shopping: When people are looking for a personal loan they tend to apply to a lot of places. This can be a problem for a few reasons. First, before a lender gives you a quote, they do a hard credit check. Hard credit checks can ding your credit between 5-15 points. Many don’t realize that if you apply within around 14 days it is considered one hit, but if you apply more sporadically it can actually hurt your chances at getting an approval.

    What are the risks of a personal loan? 

    One of the largest risks of a personal loan is if you have a secured loan and default on your payments. This can result in them taking your asset so make sure you can make the payments before committing. It can also be reported to the credit bureau and hurt your ability to get another loan. 

    Any loan that ends up as a bad debt write-off or in collections takes years to fall off your credit report, so it is important to make sure the loan is affordable before you agree to the terms. It takes 6 years for a bad debt write-off to fall off and 7 years for collections. 

    Should you use a Credit Card instead of a Personal Loan in Ontario?

    While we have gone over the many benefits of a personal loan, what about credit cards? Just like loans, there are positives and negatives. Whether you use a loan or a credit card depends on a lot of factors based on your individual situation. 

    There are a lot of situations where credit cards are the desired option. For one, the minimum payments on credit cards are much lower than on personal loans. They allow you to put as much money as you have available on the balance. The problem with that though is credit cards have very high interest rates. They are meant for small purchases so higher balances can be very difficult to pay off. 

    Another great reason to use a credit card is points/travel rewards or cash back. If you earn extra rewards for using your credit card, it could be the way to go. Especially if you know that you can pay off the credit card quite quickly. However, if you let credit cards build too high and don’t have the ability to pay them off in chunks, you could end up spending way more in interest than in rewards. 

    One of the downsides to using a credit card is that it is much simpler to obtain and use than a personal loan. While you may not intend to, it is very easy to keep swiping and lose track of your credit card balance and a high credit card balance can be a difficult cycle to break. 

    Credit cards can also have a more negative impact on your credit score. According to the government of Canada, any balance over 35% on your credit card has a negative impact on your credit score if it is reported on your statement. If you have a balance over 35% continuously, over time you are doing more damage to your credit than good. With a personal loan, however, all payments report positively to the credit bureau because it has fixed payments.

    Overall, while credit cards can be a great tool, especially in emergencies, a personal loan is the better option for large amounts of money. If you are able to get a personal loan instead of racking up your credit card, it could save you a lot of money in the long run. 

    What makes Personal Loans better than Payday loans

    While payday loans are very convenient we also know that there are some negative aspects to them such as a high interest rate. They also don’t positively affect your credit score. This can make it very difficult to get out of the payday cycle. Even if you pay every payday loan back in time, it won’t make a difference to future lenders.

    Payday loans also have to be paid back sooner than personal loans. This can make paying them back very difficult, especially with the high interest rates. This often results in taking out more payday loans to pay off the ones you already have, creating a cycle that can be very difficult to break. 

    Unlike payday loans, personal loans have credit-building power so they allow the borrower to slowly increase their score and get better interest rates. Because they do report to the credit bureau and require credit checks they can be a lot more difficult to get leaving payday loans as the only option. 

    At the end of the day, payday loans end up costing way more money, are more difficult to pay off, and do nothing for your credit score. It is recommended to go with a personal loan if you have the option. 

    What can a personal loan be used for?

    When you take out a personal loan it is your own business how you use it. In Ontario, it is common for people to use these loans to help cover their monthly bills, fund home renovations, and even to take vacations. 

    While these are great uses for a personal loan, they can be used for anything from emergencies to extra cash. The limits are endless. 

    Reasons to get a personal loan

    Even though personal loans can be used for anything there are many different reasons people choose to get a personal loan. Here are a few of the most common ones.

    • Debt Consolidation: Having multiple debt payments with different interest rates can make it very difficult to keep track of all of your debt. It can also increase the difficulty of paying it off. When you use a personal loan to consolidate debt, you are making one low payment making it much easier to get out of debt.
    • Emergency Expenses: This can range from anything from an unexpected vet bill to a busted hot water tank. You really never know what expenses are going to come up and it isn’t always feasible to have a large amount of savings on hand. A personal loan is an option people use quite often to help with these unexpected situations. 
    • Large purchases: Things like a new vehicle are also a great reason to get a loan. Whether you get a secured or unsecured loan when making these larger purchases, it can be much more affordable. 
    • Emergency Medical Expenses: While medical is covered in Canada, there are certain situations someone would have to pay for certain procedures. Things like laser eye surgery are often not covered, same with glasses and prescription drugs. Since these expenses can be quite costly, this can sometimes be the most affordable way to deal with these situations. 
    • Wedding Expenses: These days weddings can be extremely costly and extending that payment over a period of time can make a big difference.
    • Home Renovations: Renovations can be quite costly and that isn’t always possible without a little bit of help. 
    • Vacation: While not always, vacations can be quite costly, and it doesn’t always make sense to wait until you have the money to travel. Getting a loan can make it affordable without having to wait. 
    • Moving Expenses: There can be a lot of unexpected expenses when moving so sometimes a little extra cash in these situations can make a big difference. 

    There are so many more reasons to get a personal loan, but whatever that is, make sure you choose a loan that works for you. 

    How to apply

    How to apply for a personal loan depends on which lender you choose to go with. If you choose to go with a traditional lender such as a bank or credit union, you can apply online, over the phone, or in person depending on the institution you go through. 

    Applying with an online lender is much easier.  You can do it from the comfort of your own home and upload the necessary documents.  

    While there are many different online lenders out there, Spring Financial can get you approved for up to $15,000 in 15 minutes. We offer flexible interest rates and open-term loans. Whatever reason you decide to get a personal loan, Spring Financial is here to help. 

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