Where to Get Installment Loans in Canada
Wouldn’t it be great if you never needed to borrow money? Think about how much your cash flow situation would improve, and all of the interest you wouldn’t be charged. The reality is, we all need to borrow money at some point, whether it’s for a major purchase, to help pay for school or cover an emergency car repair.
You could use a credit card (well, maybe not for a new car) or a line of credit, or you could take out an installment loan. In this article, we’ll discuss the latter. I’ll explain how installment loans work, when they might be your best option to borrow, and show you the best places to find one. Ready? Let’s dive in.
What Is An Installment Loan?
An installment loan, also known as a term loan, is a loan with a fixed term that reduces on a monthly basis, as payments are made by the borrower. The full amount of the loan is borrowed up front, and a regular fixed payment is made until the loan is repaid in full. Car loans are among the most common types of installment loans, but they can be used for a variety of purposes.
An installment loan differs from a revolving loan, such as a line of credit or credit card, in that the borrower cannot draw additional funds as the balance gets paid down. For this reason, an installment loan doesn’t have a credit limit.
The repayment period of an installment loan can vary, depending on the purpose of the loan. For example, many new car loans are amortized over five to seven years, while a debt consolidation loan is typically spread over a maximum of 4 or 5 years. Other term loans, like an RRSP loan, can have repayment terms of as little as 12 months.
Purposes of an Installment Loan
There are many reasons people choose to borrow money. Here is a list of the more common purposes for taking out an installment loan:
- To purchase a new or used vehicle
- To consolidate high-interest debt credit cards
- Other major purchase ie. RV, home renovation, appliances
- Purchase of raw land
- To pay for post-secondary education (student loan)
- To contribute to an RRSP (RRSP loan)
What Are the Advantages of An Installment Loan?
There are advantages of using an installment loan to borrow money versus a line of credit or credit card. For starters, as you make payments, you know that the balance is going to fall until it is eventually paid in full. With revolving credit, there is always the temptation to borrow anytime you have available credit. This is why so many people have trouble paying off their line of credit or credit card balances.
When compared to credit cards, installment loans are a more affordable way to borrow, because the interest rates are almost always lower. If you’re borrowing for the purpose of debt consolidation, your bank will favour an installment loan over a line of credit as it’s deemed to be a lower risk product.
Best Installment Loans In Canada
If you have excellent credit and a well-established relationship with your bank or credit union, that’s where I recommend that you start your search for an installment loan. Not only are the repayment terms likely to be more flexible, but their interest rates will also be lower than most other financial institutions.
Unfortunately, however, not everyone can qualify for an installment loan through their primary bank. Thankfully, there is no shortage of dedicated loan companies out there willing to lend. To help you sort out the many options, I’ve created the following list of places to find an installment loan (in alphabetical order).
Loan Amounts: Up to $35,000
Interest Rates: 5.6% – 29.9%
Terms offered: 3 to 5 years
Borrowell is not an actual lender. They are a company that provides free credit reporting to Canadians, but they also connect customers to installment loan providers. I use Borrowell to monitor my credit score on a monthly basis, which is one of the reasons I recommend them. By giving Borrowell access to your credit information, they are able to connect you with loan offers from a variety of lenders. You’ll receive these offers automatically, or you can choose to apply at any time. Of course, the better your credit rating, the better the offers you’ll receive.
Loan amounts: $500 to $15,000
Interest rates: Starting at 18.9%
Terms offered: 6 months to 5 years
With Ferratum, you can complete the entire loan process online, from application to funding. They tend to offer higher loan amounts to customers who return after paying off a previous loan. Loan terms of up to 5 years are available. A word of caution with Ferratum. Their interest rates start at 18.9%, which is essentially a credit card interest rate. Unless you are wanting to consolidate debt that is at a much higher interest rate, say 30% or more, I would check out other options first.
Loan Amounts: $2,000 to $10,000
Interest rates: 34% and up
Terms offered: 1 to 5 years
LendingMate has less stringent approval criteria than other lenders, but there’s a catch – they charge very high interest rates. In fact, their rates are often higher than a standard credit card. They can be helpful if you are suffering with poor credit, and you lack other options. If your only alternative is filing for a consumer proposal or bankruptcy, consider LendingMate. Remember that you can pay off your loan at any time without a penalty.
Loan amounts: $500 to $300,000
Interest rates: 3% to 46.96%
Terms offered: 3 months to 5 years
Loans Canada provides Canadians with access to multiple lenders, placing a premium on speed when it comes to getting your application approved. Sometimes, funds can be received within 48 hours. Loans Canada does not have a minimum credit score requirement, and because they deal with so many lenders, your chances of getting approved are greater. Interest rates vary, and it should come as no surprise that the lowest rates are reserved for those with the highest credit scores.
Loan amounts: up to $50,000
Interest rates: starting at 4.6%
Terms offered: 12 – 60 months
Similar to Loans Canada, LoanConnect can offer a lower interest rate to customers with strong credit. In fact, rates start at 4.6%, which isn’t a whole lot higher than where mortgage rates currently sit. LoanConnect deals with more than 20 lenders, which increases your chances of approval. You do not need a minimum credit score to apply for a loan with LoanConnect
Loan amounts: $500 to $350,000
Interest Rates: 5.9% to 45.9%
Terms Offered: 1 to 5 years
Mogo has some unique features, including free monthly credit monitoring, a 3-minute online loan pre-approval that doesn’t hit your credit bureau, and a 100-day test drive. With the latter, you have the option of paying back the principal of your loan within 100 days, and Mogo will refund you any fees or interest charged. It’s their way of letting you change your mind if you have second thoughts. As with most of the other loan providers on this list, the interest rates range from very reasonable (5.9%) to outlandish (45.9%). Keep this in mind when you apply.
Drawbacks of Taking Out an Installment Loan
Installment loans have some clear benefits over other types of credit, but they are not without their share of drawbacks. First, there is the convenience factor. With an installment loan, everything needs to be planned out in advance. This includes the amount you’ll need to borrow, and the timing of when you’ll need the funds. A line of credit, on the other hand, offers the flexibility of being able to borrow funds only as you need them.
Take home renos for example. You may need several months to complete a project, so you won’t need all of the money up front. If you take out an installment loan, you’re paying interest on the full loan amount from day 1, whereas a line of credit will allow you to borrow as you go, saving you interest.
A line of credit offers more payment flexibility. Instead of being locked into a fixed payment each month, you may only be required to pay the interest, or a low minimum payment, covering the interest and a little bit of the principal. Of course, this won’t help you pay your debt down any faster, but it is more flexible.
Installment Loans – Final Thoughts
Regardless of the type of loan you take out, you need to think long and hard before going into debt. Always consider whether a purchase is truly necessary, or if there are other ways you can pay for something ie. from your personal savings. Loan interest does add up over time and can impede on your financial freedom. If you’ve weighed your options and made the decision to borrow, an installment loan might just be the way to go.