Long-term loans in Canada typically have financing terms from 3 years up to 10 years. These loans give you smaller monthly repayments than shorter-term loans, but you’ll pay much more in interest over time. The amount of time you’ll get to repay your loan will depend on how much you borrow. For example, you may get 7 years to repay a loan of $50,000, while you might only get 3 years to repay a loan of $10,000.
Types of long-term personal loans
There are 2 main categories of long-term loans in Canada. You’ll need to decide which type of loan best suits your needs before you apply for financing.
Secured vs unsecured loans
- Unsecured loans. These loans rely on your credit score and income to determine if you’re eligible for financing.
- Secured loans. Secured loans let you borrow money that’s guaranteed by collateral such as your home or car. If you fail to repay secured loans, then your asset can be taken as payment. Loans that use home equity as collateral tend to offer larger loan amounts and longer loan terms, sometimes up to 25 years.
Fixed-rate vs variable-rate loans
- Fixed-rate loans. Fixed-rate long-term loans in Canada include a fixed interest rate and consistent monthly repayment amounts for the lifetime of your loan. This means that the amount you pay back each month never changes so that you can budget ahead.
- Variable-rate loans. Variable-rate long-term loans rise and fall with the prime rate that’s set by the Bank of Canada. This causes your monthly payments and interest costs to fluctuate from month to month.
Can I get long-term loans for bad credit?
There are long-term loans for bad credit, but be careful with long terms if you’re getting a personal loan with a low credit score. Bad credit personal loans have steeper interest rates, and the combination of a long loan term and high interest rate can make your loan especially costly.
For illustration purposes, let’s say a borrower with a 550 credit score takes out a $5,000 loan with a loan term of 3 years at 32% APR. The monthly payment would be $167.96, and the cost would be:
- Total loan cost: $10,077.77
- Total interest: $5,077.77
As you can see in this example, the interest is actually more than the amount borrowed.
How to manage long-term loans for bad credit
If you have bad credit, aim to get the shortest loan term possible with monthly payments you can still manage. If you need a long loan term so you can afford the monthly payments, know exactly how much the loan will cost you throughout its lifetime before signing. Also be aware of any extra fees you may encounter, such as NSF fees, late payment fees and fees for paying off your loan early.
Tips to getting a long-term loan with bad credit
- Apply to an online lender. Your best bet to getting a long-term loan for bad credit in Canada is to avoid the bank and apply to an online lender. Online lenders have more flexible eligibility requirements. Compare online lenders.
- Don’t get a long-term loan with prepayment penalties. You have many options for this, because most lenders of bad credit loans allow you to pay off your loan any time without penalty.
- Secure your loan with an asset. You may be able to get around a bad credit score by securing the money you borrow with an asset such as your home or car. Just be aware that your asset can be repossessed if you fail to make your loan payments.
- Confirm that your payments will be reported to the credit bureaus. Make sure the lender you choose will report your on-time payments to the credit bureaus so your credit score will increase.
Can I get long-term loans for bad credit and instant decision in Canada?
If you’re looking for long-term loans for bad credit with instant decision, consider online lenders in Canada. Some online lenders give personal loan pre-approval within 1 to 3 minutes, letting you know instantly whether they want to proceed with your application or not.
Getting pre-approved does not mean you’re guaranteed the loan; it means that from what it sees on the surface so far, a lender wants to proceed with your application. If you proceed, you’ll need to provide documents to verify your income and identity, and the lender will do a more in-depth review of your finances. If everything checks out, it will give you an official approval.
Can you get long-term loans with no credit check?
It’s possible to get long-term loans with no credit check from some lenders if you use your car as collateral. That type of loan is called a car title loan or vehicle title loan. It has loan terms up to 60 months, but the interest rate can range from 9% to 49%. Because vehicle title loans are secured, they can be easier for people with bad credit to qualify.
How much does a long-term loan in Canada cost?
In general, the longer your loan term is, the more it will cost. That’s because a long loan term provides more time for interest to be charged. That said, you’ll usually get slightly lower interest rates with long-term personal loans than with short-term loans.
If we use the interest rate of 8.42%, you can see an illustration in the chart below of how much you’ll pay in interest alone on a $10,000 loan for different loan terms.
You’ll spend almost $3,000 more by opting to pay off $10,000 with a long-term loan of 9 years as opposed to 3 years. That’s why it’s important to get the shortest loan term you can comfortably afford in order to avoid spending more than necessary on interest.
You can use the loan calculator below to calculate the overall cost of interest and the monthly payment amount for any long-term loan you’re considering.
Calculate monthly payments of a long-term loan
|Loan terms (in years)|
Fill out the form and click on “Calculate” to see your estimated monthly payment.
orCompare personal loans
Based on your loan terms
Where to get long-term loans in Canada
There are a number of different providers that offer long-term loans in Canada.
Bank long-term loans
Bank loans are provided by Canada’s Big Five banks and other major financial institutions. These loans often come with higher interest rates and have strict repayment requirements. You’ll need a good to excellent credit score to qualify for a long-term loan from a Canadian bank.
|Banks offering long-term loans:|
BMO, TD Bank, RBC, CIBC, Scotiabank, HSBC, Canadian Western Bank and National Bank.
Credit union long-term loans
Credit unions provide long-term personal loans that are a little bit more flexible than big bank loans. You’ll typically need to be signed up with the credit union you want to borrow from but you may get better interest rates.
|Credit unions offering long-term loans:|
Meridian, Servus, Vancity, Connect First, Conexus, First West, Steinbach, Alterna Savings and Coast Capital Savings.
Private long-term personal loans
You can get online long-term loans in Canada from private alternative lenders. They tend to come with less strict eligibility criteria than bank and credit union loans, but that often means you’ll be charged higher interest as well. Online lenders also often provide long-term loans for bad credit borrowers.
|Private lenders offering long-term loans:|
How to get a long-term personal loan
You can apply for long-term loans in Canada by following the steps below:
- Decide how much you need to borrow.
Take time to think about your budget and how much you can afford to repay each month. You can use an online loan calculator, like the one here, to find out how much your monthly payments will be with interest.
- Compare lenders.
Once you know how much you can borrow, it’s time to compare lenders. You can compare banks, credit unions and online lenders to find the best deal. You should aim to find the lender with the lowest long-term interest rates and the best repayment terms.
- Aim to prequalify.
Prequalifying for a loan gives you an idea of how much you can borrow and what your interest rates will look like before you actually apply. The prequalification process is faster than applying for a loan outright, and lets you apply with several lenders without ever having to commit to a loan.
- Complete an application.
Once you’ve decided on a lender, your next step is to go through the application process. This will involve filling out forms and submitting personal and financial information. The process tends to be much less time-intensive if you’ve already pre-qualified with the provider you’re interested in.
- Negotiate your terms and sign the contract.
Discuss your long-term loan interest rates and terms with your provider. Try to negotiate your rates down by asking your lender to match or exceed other quotes you’ve received. Sign your loan contract when you’re ready to commit to an offer.
If you apply with an online lender, or bank or credit union that you have an account with, you can receive your funds as soon as the next business day. Otherwise it could take a few business days or even a few weeks.
What are the requirements to qualify for a long-term loan?
You’ll usually need to meet the following criteria to qualify for long-term personal loans with most lenders:
- Canadian citizen or permanent resident
- Over the age of 18 (or 19 in some provinces)
- Steady employment and regular income
- Low debt-to-income ratio (under 40% is expected)
- Not experiencing bankruptcy or other forms of unmanageable debt
You’ll usually need to provide the following information to apply for long-term loans in Canada:
- Government-issued ID. You’ll be required to show proof of ID like your driver’s licence or passport.
- Proof of income. You’ll need to provide documents such as pay stubs and tax assessments to show that you make enough money to afford your monthly payments.
- Credit report. You’ll have to let your lender pull your credit report so that it can assess your creditworthiness.
- Debt-to-asset ratio. You’ll likely be required to submit information about your debt-to-asset ratio to show that other debts won’t affect your ability to make repayments.
Pros and cons of long-term loans in Canada
- Lower monthly payments. Long-term personal loans tend to come with lower monthly payments, which can free up more of your monthly cash flow and help you borrow money on a small budget.
- Larger amounts. You’ll be able to borrow larger amounts of money with long-term personal loans since your lender will spread your payments out over a longer period of time.
- Pay off the loan as your budget allows. If your lender doesn’t charge prepayment penalties, you can still save on interest by making extra repayments with windfalls like a raise or annual bonus without straining your budget each month.
- Higher total cost. You’ll usually pay thousands of dollars in interest on top of your original loan amount with a long-term personal loan, which can lead your costs to rise exponentially.
- In debt for a longer period of time. You may have difficulty qualifying for other forms of credit while you’re paying off your long-term personal loan. This is because your debt-to-income ratio will increase as soon as you borrow.
- High interest cost for long-term loans with bad credit. When you combine the high interest rate for bad credit borrowers with a long loan term, the cost of borrowing becomes very expensive. It may be better to try to get a lower interest rate by increasing your credit score before applying for a long-term loan.
5 questions to ask when comparing long-term loans
- What is the interest rate of the loan? This largely defines what your repayments will be over the course of the loan. Take this into account and calculate what your repayments will be to determine if you’ll be able to make them. You will also likely have the option to choose between fixed-rate and variable-rate interest rates.
- Is the loan secured or unsecured? Secured loans require you to provide some kind of collateral and will typically have lower interest rates in comparison to unsecured loans. If you’re buying a car, the car will usually serve as collateral. Other forms of collateral include equity on your home, expensive jewellery or antiques.
- How much is the loan amount? The amount you can borrow depends on various factors such as your credit score, what you need the funds for, your ability to provide suitable collateral, your income and your monthly expenses.
- Can you repay the loan early? Repayment flexibility may be important to you even if you want a long-term loan. You may come into some cash and want to make extra repayments or decide you want to pay your loan off altogether before the original payoff date. Find out if you can do this without incurring extra fees.
- What are the other fees and charges on the loan? Other fees and charges will likely apply. These fees should always be clearly listed on your loan agreement. If you’re unsure of any charges, contact the lender directly.
Long-term loans vs short-term loans
The type that makes the most sense for you will depend on your unique set of needs and financial situation. Generally, you should aim to pay off your loan as soon as possible, but you also don’t want to have unreasonable monthly payments that could cause you to default.
|Feature||Long-term loans in Canada||Short-term loans in Canada|
|Best for||People with large expenses or a low monthly budget and can get a low interest rate||People who need a quick injection of cash that they want to pay back quickly|
Representative example: Sally, an Ontario resident, takes out a long-term personal loan
Sally lives in Ontario and needs money to pay for renovations to her basement. She wants to borrow $20,000 and can afford monthly repayments of at least $1,000. She compares short- and long-term loan interest rates to figure out how long she should take her loan out for.
|Feature of loan||Short-term loan||Long-term loan|
|Term||2 years||5 years|
|Total loan cost||$22,595.27||$24,331.67|
Even with a lower long-term loan interest rate, Sally still ends up paying nearly $2,000 more in interest with the long-term personal loan. That said, she still decides to go with the long-term loan to cut her monthly payments down significantly.
3 things to watch out for
- Excessive debt. While taking out a long-term personal loan might seem like a good idea, it might lead to debt that may be difficult to repay. Try to make a repayment plan ahead of time and account for unexpected expenses in your budget.
- Fees and charges. Make sure you go through the fine print on your contract and find out exactly what you have to pay in terms of fees and charges. These can come in the form of application fees, insurance costs, origination fees, early repayment fees, settlement charges and late charges, among many others.
- Tendency to overspend. Long-term personal loans normally set a minimum loan amount that may leave you taking out more money than you actually need. If you’re not responsible with that extra cash, you can be tempted to spend it elsewhere. Remember, only borrow as much as you need.
You can apply for long-term loans in Canada through your bank, credit union or online lender. These loans offer lower monthly payments than short-term loans, but you’ll pay more in interest over the lifetime of your loan due to the longer repayment period. Before applying for long-term loans in Canada, compare personal loans to find the best deal.
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