What is a Personal Loan?

Are you surrounded by debt or there is a need for big appliances? That you cannot purchase from your monthly income? No problem, you can get everything you want. How is it possible? Because many banks and credit union companies in Canada are providing you with personal loans. Want to know more about it? Read the article carefully. 

What is a Personal Loan? 

Living in Canada can be expensive sometimes. To meet the finances, you may drown in credit cards or other debt. Or you need money for home renovation or car repair. You can now easily get money from banks, credit unions, or other organizations. This is a personal loan that you can use for various purposes. 

These organizations provide you with personal loans but in return, they will charge you with interest and principal too. A personal loan or you can say a consumer loan is given in the form of a lump sum amount and has a fixed interest rate when you repay it. You have to pay a fixed repayment amount every month. So budgeting will help you maintain your financial health. 

How does a personal loan work? 

A Personal Loan or consumer loan is generally borrowed from banks or credit unions. It is not only beneficial for you but these companies also get the benefit of it. They charge you monthly repayment of borrowed money along with fixed interest and principal. 

The amount range of personal loans also varies from bank to bank. But in general, it starts from $1000 to $50,000. Which you have to pay within 6 months to 6 years of monthly repayment. Mostly the personal loan is used for:

• High-interest debt consolidation 
• Renovation of house
• Car repairing 
• Medical expenses 
• Wedding Expenses 
• Unexpected purchases 

Personal loans are different from student loans or things you purchase in installments etc. So don’t mix it with other loans, it is specifically a loan for home renovation or car repair, etc. 

Types of Personal Loan 

Personal loans are used to fund your various expenses like home, car education, etc. Sometimes you want to convert from high-interest debt to low one. So for this reason, you can also get a personal loan. Mainly, Personal loans are of 2 types; secured and unsecured loans. 

• Secured loans

A loan that requires collateral as a condition to get a loan is said to be a secured loan. It all depends on the lender and which type of collateral they allow. Like cash assets or any vehicle or house for collateral purposes. But if a person defaults, the lender will keep your asset with him to adjust the debt. 

• Unsecured loans

An unsecured loan is a signature loan, that doesn’t require any collateral for borrowing money from lenders. So it generally has a high interest rate because of the risk of no collateral to get. That’s why this type of personal loan is often given based on the creditworthiness of a person.  

Name the Banks that offer personal loans in Canada.

If your credit history and credit score are in a good position, then you can easily get a personal loan from any organization in Canada. 

• Royal Bank of Canada 
• Scotia bank
• Bank of Montreal 
• Toronto Dominion Bank
• Canadian Imperial Bank of Commerce 

If you have a good credit score, then you can easily get a personal loan from these banks. Similarly, credit unions and private creditors also provide you with personal loans but charge you additional fees. 

What is the interest rate on a personal loan?

Getting a personal loan can be easy but do focus on the terms and conditions behind it. That is how much interest rate the lender is applying and what are the other additional fees on that loan. In Canada, each bank or company has its own set of terms and conditions regarding fees and tariffs. 

Knowing about interest rates is necessary because it impacts on total cost you have to pay. Lower interest rates start from 8.9%, and according to law, the interest rate doesn’t exceed 60% annually. 

The interest rate is also dependent on your credit report. Like if your credit history and credit score are good, then there are chances to get a personal loan with minimal interest rates. 

How to apply for a personal loan in Canada?

For getting a personal loan, there are strict qualification Criteria. That you should meet to get a loan. What’s it?

• You must be a Canadian resident and have an original ID card.
• Your age is 18 or above 18, as of the majority of people in that area.
• Monthly income must be in range, and you have proof of income for the previous 3 months.
• Good credit score is also key to getting a loan quickly, which is more than 660.

A good credit score will show your creditworthiness and the lender will determine whether you can easily pay back the money or not. Now you can apply for a personal loan in any bank or organization in Canada.

You can visit any nearest branch of the bank, where you are trying to get a loan. Or open their website and fill out the online application form. Attach all the necessary documents and submit the form. Your loan request can be approved within 24 to 48 hours. 

The lowest interest rate for personal loans in Canada 

Many banks and online/offline lenders are providing personal loans in Canada. The top 5 banks of Canada are famous due to their flexibility and quick funding for personal loans. A lower interest rate will save you from paying extra money. 

In 2024, the Bank of Montreal is considered as best bank to provide flexible personal loan options to the customers. From interest rate to loan amount, this loan is your ultimate financial assistance. Because interest rate starts from 8.99% to 22.9% and this bank provides you with personal loans from $1500 to $35000. It is a customer-friendly loan solution m because there are no other charges and other penalties. Other than this, there are no special criteria for credit score. So anyone can easily avail of this personal loan. 

Pros and cons of personal loan 

There are many advantages and disadvantages of having a personal loan. 

Pros

• Personal Loan is the best solution to get the funds quickly. You can use that lump sum amount for multiple expenses. Some lenders in Canada will provide you with a loan within 24 hours. 
• There is no need for collateral like a house or car. So it is easy to get a personal loan for your large purchases and big expenses.
• Fixed interest rate and monthly repayment will let you manage your finances accordingly.
• The interest rate on personal loans is lower than that of other debts like credit cards.
• Personal loan is one of the flexible loans that allow you to choose, how much and in how many months you can pay off the personal loan easily. 

Cons

• Some lenders will charge you a greater interest rate. So it will affect the borrowing amount. 
• Late fee penalties and other additional charges are high.
• You have to pay a higher monthly repayment than that of a credit card.
• Additional charges will increase the debt and the load too.
• It can also hit your credit score.

If you want a quick fund to solve your big problem, then a personal loan can be a great option. If your finances allow you to monthly pay back the debt in years. Then getting a personal loan is an affordable and flexible choice. Make the smart decision by getting a personal loan and use it to improve your lifestyle.