How do 3-year personal loans work?
A 3-year personal loan is a loan that you repay with regular monthly payments over 36 months, plus interest and fees. Three years is one of the most common term lengths for a personal loan.
Most lenders offer 5-year terms as well. And almost all personal loans come with fixed rates, which means you’ll have the same payment each month.
Can I qualify for a 3-year loans in Canada?
You can qualify for a 3-year term if you show the lender you have the money in your budget for the monthly payment. This can range from under $100 to over $3,000 in some cases.
If the monthly payment on a 3-year loan is too high for your budget, your lender might suggest a longer term. With personal loans, you can often make extra payments with no penalty — so even if you qualify for a 5- or 7-year term, you can still pay it off over 3 years.
Eligibility requirements of personal loans
Eligibility requirements for 3-year loans in Canada vary from lender to lender, but generally, you need the following:
- Be the age of majority in your province or territory.
- Be a Canadian citizen or resident.
- Meet the minimum income.
- Meet the minimum credit score.
What types of 3-year personal loans can I get?
Types of 3-year loans in Canada include the following:
- Secured personal loans. If you’re considering a secured personal loan, you can typically use the equity in your home, your paid-off car, money in a savings account or any other valued asset — fine art or jewelry — as security for the loan. Home equity is the most common asset to use.
- Unsecured personal loans. An unsecured personal loan requires no secured asset and can be used for nearly anything, from consolidating debt to making a large purchase.
- Fixed-rate personal loan. With this loan, your interest rate will stay the same throughout the loan term, so you get predictable monthly payments.
- Variable-rate personal loan. With this loan, your rate will fluctuate with the markets, which will increase or decrease how much of your payment goes towards your principal. If interest rates increase, more of your monthly payments will go towards paying interest. Banks and credit unions offer variable-rate loans.
How to compare 3-year loans in Canada
If you’re certain that a 3-year loan is right for you, the next step is to compare all of your options to get the best deal possible. Here are features to look out for when comparing:
- Interest rate. You’ll be locked into this interest rate for 3 years, so be sure it’s competitive. Secured loans tend to have better rates than unsecured loans — but keep in mind that you’re risking an asset if you fail to make payments on a secured loan.
- Upfront and ongoing fees. Are there any application or origination fees? Will you be charged monthly or annual fees? Always calculate the true cost of the loan by incorporating interest rates and fees or looking at the annual percentage rate (APR).
- Other fees. Find out before you apply if your loan will attract fees for making additional payments or repaying the loan ahead of time.
- Eligibility. Factors vary by lender, but a few things that may be taken into consideration are your credit history, debt-to-income ratio, annual income and employment.
How much do 3-year loans cost?
The cost of a 3-year loan in Canada depends on the loan amount and APR. Here’s how much your estimated monthly payment could be on a 3-year loan with different loan amounts and interest rates:
|Loan amount||5% APR||10% APR||15% APR||20% APR|
Calculate the cost of a 3-year loan
Use our calculator to see how much 3-year loans might cost each month and in total interest based on different loan amounts, interest rates and fees.
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Pros and cons to consider before applying
- You can lock in a competitive rate
- Shorter loan terms help save on the total cost of the loan
- Three-year terms are available at almost all lenders
- Monthly payments can be high for large loan amounts
- Some lenders charge a fee to pay back your loan early
- You might not qualify if you don’t have consistent cash flow
Watch out for 3-year installment loans
In Canada, installment loans are a type of personal loan offered by alternative lenders to people with bad credit. Installment loans have more flexible eligibility criteria, but they come at a price of higher rates up to 47%. Your installment loan can become especially costly if you get a 3-year installment loan with a steep interest rate. Before signing on the dotted line, ask the lender how much of your payment will be going towards interest vs the principal and also check whether you can pay off the loan early without any penalties.
Three-year loans are readily available at many lenders. Before applying, know how much a personal loan with a 3-year loan term will cost you overall, and check that you won’t be charged fees for paying it off early. Read our guide on personal loans to learn more.
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