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Low interest loans in Canada
Are your finances in good shape? Find lenders who offer low interest personal loans.
Top picks for low interest personal loans
If you’re curious about low interest loans on offer in Canada, here’s a look at our top picks:
goPeer
Key features. goPeer strives to offer the most competitive interest rates to Canadians with good to excellent credit. It is the first regulated consumer P2P lending platform in Canada. The interest rate for unsecured personal loans (with no collateral required) starts at 8%. The maximum loan amount is $25,000.
How it works. Fill out a quick application and wait to get approved. Receive a response within 24 hours and get funded anonymously by Canadian investors within a few business days.
Eligibility requirements. You must have a minimum credit score of 600, minimum annual income of $15,000 and be a Canadian resident for 3+ years.
LoanConnect
Key features. LoanConnect is an online broker. You can apply for loan amounts up to $50,000. Interest rate starts at 1.9% for secured loans (collateral required) and 9.90% for unsecured loans. You can search its lender network without affecting your credit score. When you find a loan, LoanConnect sends you to the lender, who generally does a soft credit check that does not impact your score. If the lender needs a full credit check, it will let you know first, and you can choose not to proceed.
How it works. Use the online application to provide personal information, such as your name, email address, proof of ID and relevant documents. Review and submit your application. See your lender matches.
Eligibility requirements. You must be of the age of majority in your province of residence and a Canadian resident. You must also show that you make enough money each month to repay your loan on time.
What is a low interest personal loan?
What’s considered a low interest rate? An unsecured personal loan with low interest will usually have a rate that sits between 6% and 12% for fixed rates, while variable rates will fluctuate in line with the prime rate. If you have a great credit score and you’re willing to secure your loan, you could score a rate as low as around 2%, according to some lenders. But please keep in mind that very few people can qualify for the absolute lowest rate.
Getting a rate that falls under 12% allows you to put more money down on your principal over the course of your term.
Why can’t I qualify for the lowest rate with a lender?
It’s very difficult to get the lowest advertised rate with any lender because this rate is usually reserved for “ideal” borrowers. This includes those that have very high incomes, own many assets and have very little debt. While it still pays to apply for an advertised rate that interests you, be prepared for rate adjustments once all of your personal variables have been factored in.
What types of loans have the lowest interest rates?
- Secured loans. Secured loans offer lower interest rates than unsecured loans in most cases since they are guaranteed by an asset such as your home or investments. Just keep in mind that your asset can be sold to cover your payments if you default on your loan. They’re typically the most traditional way to get approved for a personal loan, especially if you’re borrowing a large amount of money.
- Guarantor loans. If your credit score is not the best, guarantor loans can offer lower rates if your guarantor’s finances are in great shape. However, your guarantor should understand that their credit score can go down if you don’t make your payments on time.
- Bank and credit union loans. Banks and credit unions tend to offer some of the lowest rates out there, but you generally need a credit score of at least 660 to qualify.
- Online loans. You may be able to get a better interest rate with an online lender than what you might get with a bank or in-person lender. This is because you can take the time to compare rates side-by-side to make sure you’re getting the best deal. They also have the fastest turnaround time.
- Home equity loans or lines of credit. If you own a home and are willing to use some of your equity in it to secure a loan, you can often get a competitive interest rate.
Other low interest loans: home equity lines of credit and home equity loans
What types of lenders have low interest loans in Canada?
The following types of lenders might offer low interest rates, though you might not be able to qualify with all of them unless you have good credit.
- Banks. If you’re in good standing with your bank, it may be a good start to inquire with them about a low interest loan.
- Credit unions. Credit unions often offer low rates to a wide range of credit types compared to other lenders since they’re owned by their customers. The process may take a bit longer, especially if you aren’t a member yet and need to apply to join first.
- Peer-to-peer lenders. An online peer-to-peer lending platform like goPeer can reduce operating costs and pass on the savings to the borrower.
- Online lenders. These lenders have higher rates on average, but typically put less weight on your credit score than a bank or credit union. You can research online lenders’ interest rates in the comparison table above or their websites.
- Connection services. A connection service such as Loans Canada and LoanConnect can help you quickly prequalify with multiple lenders to help you quickly find the lowest rate you qualify for with its partner lenders.
How to compare low interest loans in Canada
There are a number of factors that you should consider when applying for a low interest loan:
- Interest rates. The main feature of low interest loans that makes sense to compare is interest rates. Rates can run as low as 2% and as high as 47%, depending on your credit score and other variables. Look for a lender with a rate that falls under 12% to get the best deal on your low interest loan.
- Loan amount. Some lenders will only offer $500 as a maximum loan amount, while others might give you $20,000. Look for a lender that offers the best rates with maximum loan amounts that meet your financing needs.
- Fees. Some loans come with set-up fees while others charge prepayment fees or late fees. Make sure to discuss applicable fees with your lender and find out what services you might have to pay extra for.
- Loan term. Loan terms for low interest loans typically range from six months to seven years. Aim to have your loan for the least amount of time possible with repayments that you can afford since the longer you have your loan, the more you’ll pay in interest.
- Processing time. Some lenders can get you financing in a couple of hours while others take days or weeks to process your application. Search for a loan provider that offers a turnaround time that matches your timeframe (not the other way around).
How do lenders determine my interest rate?
Your lender will determine your interest rate by looking at your financial history. This can include factors such as the following:
- Your credit score.In most cases, your lender will pull your credit report to make sure that you don’t have a history of defaulting on loans. To get a low interest rate, you’ll typically need to have a score of 660 or higher.
- Your debt-to-income ratio.Your lender will want to make sure you don’t owe more money than you make each month. They’ll combine the value of your debts and divide this by your income to make sure you don’t come up short on your payments.
- Your debt-to-assets ratio. Your lender will also calculate what your assets are worth in comparison to your debt to find out if you own more than what you owe. This helps them decide how likely you are to pay off your debts.
- Non-conventional factors. Lenders may also consider less conventional factors such as your work history, level of education and even how many times you’ve changed your address in the past couple of years to determine your eligibility.
How to get a personal loan with low interest
There are several steps you can take to find the lowest interest rate on a loan.
- Make yourself look like an ideal borrower. Make sure you can prove that you’ve had a steady job and housing situation for several years. This will show your lender that you’re a stable and reliable person who is less likely to default on payments.
- Check your credit score. Know your credit score and expect to pay more if it’s below 660. You may want to try to build your credit score before applying for a large loan if you’re really keen to get the lowest interest rates on the market.
- Fix errors on your credit report. You may have errors on your credit report that are bringing your credit score down. Find out how you can fix these mistakes so that your credit score goes up and you qualify for better rates.
- Pay down your debts. Pay down money you owe on other debts before you apply to bring down your debt-to-income ratio. The lower your ratio the more chance you’ll get the lowest interest rates available (provided your credit score is good).
- Consider a secured loan. Backing your loan with collateral offsets the risk for the lender and can help you qualify for a lower rate.
- Only apply for the amount you need. Lenders calculate interest based on the amount you borrow. By only applying for the amount of money you need, you’ll be able to keep the overall amount of interest you have to pay down.
- Shop around. Don’t just go with the first lender you find. Compare several different lenders to lock in the best rates. This includes sourcing quotes from different types of providers – including big banks, credit unions and online private lenders.
- Look into relationship discounts. Your bank might offer rate discounts as high as 0.5% to current checking account customers – and can get you funds faster.
- Sign up for autopay. Some lenders offer a rate discount to borrowers who sign up for autopay. It’s an easy way to lower your interest rate and can also help you make repayments automatically (so you don’t have to think about it).
How to get low interest personal loans for bad credit
Your credit score is the single most important factor that will determine your interest rate. People with bad credit will have a harder time getting a low interest personal loan; however, loan options are still available. Your best bet is to apply for a bad credit loan. Certain online lenders provide these bad credit loans to people with less-than-perfect credit or no credit history at all but they often come with higher interest rates.
If you want to secure a low interest personal loan but you have bad credit, your options include the following:
- Ask a guarantor to cosign your loan. If you have bad credit but a family member or friend with great credit is willing to act as a guarantor on your loan, you may be able to secure a lower interest rate on your loan. Just make sure your relative is aware of the responsibility they’re taking on in case you default on your loan. Their credit score could take a hit if you don’t keep up with repayments. Learn more about cosigned loans.
- Secure your loan. If you’re willing to secure your personal loan with an asset such as your car or your house, your lender may be able to provide you with a lower interest rate. You offset the risk that they’ll lose out on the loan by offering up your assets in case you default.
- Improve your credit score. Before you apply for a personal loan, try to improve your credit score. Stay on top of your monthly payments, avoid any late or missed payments and pay down as much of your existing debt as possible. This will make a world of difference before you make your case to lenders to borrow more money.
- Check the eligibility criteria before applying. Most lenders that provide bad credit loans have specific requirements you need to meet in order to qualify. For example, they will explicitly state the minimum income you must receive every month and will insist that you’ve been employed for at least three months. If you’re not sure you’re eligible, call the lender’s customer service team to discuss your situation.
- Compare options before applying. While you may think your options are limited, you should still comparison shop before deciding on the best loan for you. You may find varying interest rates or disparities in charges and fees between bad credit lenders.
How can I make sure I get the best rate if I have strong credit?
Having good or excellent credit pays off when you’re shopping for a low interest personal loan. Borrowers with a credit score of 660 or higher will have the most options available to them, including better interest rates and terms.
Traditional lenders such as banks or credit unions will want your business. They usually offer the best interest rates, but turnaround times tend to be longer. If you need funding quickly, you can apply with an online lender. Rates with online lenders can range from as low as 2% up to around 47%. If you have good credit, you’ll fall on the lower end of the scale when securing your loan. Depending on your income and other financial circumstances, you may be eligible for a secured or unsecured loan.
Securing your loan by providing collateral will help you get the lowest interest rates loans involving collateral are less risky for lenders.
How to apply for low interest loans
You can apply for a low interest loan by following the steps below with most lenders:
Application process
- Visit your lender’s online website to fill in an online application. This should take only a couple of minutes if you have the necessary documentation on hand.
- Input your personal information, such as your full name, date of birth, address, phone number and email.
- Provide financial details such as your bank name and transit number.
- Submit to a credit check or fill out the necessary paperwork to put up an asset as collateral to secure your loan.
Loan eligibility requirements
To qualify for a low interest personal loan, you may need to meet the following eligibility requirements:
- You must be at least 18 years old or the age of majority in your province or territory.
- You’ll need to be a Canadian citizen or a permanent resident with a valid Canadian address and two valid pieces of identification.
- You must be able to demonstrate that you can pay off your loan by showing pay stubs, tax statements and other financial documents.
- You’ll usually need to have a bank account to apply for a loan online.
What to know before you apply
Look into these factors before you start comparing lenders.
- Credit score. Check your credit score online to get an estimate of the number your lender will see as well as your credit score range. This can help you understand the types of rates you’re eligible for. If your score is below 660, consider taking steps to improve your credit first.
- Debt-to-income ratio. Use a calculator to get an estimate of what your debt-to-income ratio is. If it’s over 43%, you might have trouble qualifying for a loan. Try focusing on paying down your debt before you apply for a loan.
- Monthly cash flow. Lenders look at how much money you have available each month to cover loan repayments after you’ve paid your bills. You should have enough in there to cover monthly repayments on the loan amount and term you’re considering with room for emergency costs.
- Exact loan amount. Go in knowing how much you need to borrow so you can rule out lenders who don’t offer financing in that range. If you’re not sure how much you’ll need, consider more flexible financing options like a credit card or line of credit instead.
Pros and cons of low interest loans
If you’re thinking of taking out a low interest personal loan, here’s a look at some of the pros:
- Save money. You’ll save money on interest payments with a lower rate, which means you’ll have more money to pay off your loan or buy whatever you want.
- Faster repayments. More of the money you put onto your loan will go towards your principal, so you’ll be able to pay it back faster.
- Easy process. With the advent of online loans, it can take under 10 minutes to apply for a low personal loan from start to finish. You can start by applying online, and then you can keep track of the loan online as well. If you prefer to apply in person at a store, find a lender that has a physical branch location near you.
- Repayment flexibility. A number of lenders allow you to make repayments according to how frequently you get paid. If you can repay your loan ahead of time without being subject to an early payout penalty, you can save on fees and interest.
- Rebuild your credit. If you have less-than-perfect credit, a personal loan may be a great opportunity to rebuild your credit score as long as you stay committed to making your repayments on time.
Low interest personal loans also come with some downsides to be wary of:
- Difficult to qualify. You may have difficulty getting low interest rates unless you have a high credit score or are willing to put up an asset to secure your loan.
- Advertised rates don’t always pan out. Many of the lowest rates you see advertised online are reserved for very high-income, low-debt borrowers.
- Scams are prevalent. If you find very low rates online, you may have reason to be suspicious and should do more research before handing over your personal information.
- Adding more debt to your name. If your goal is to be debt-free, a personal loan may dig you deeper into the red.
How has COVID-19 affected low interest loan rates?
Interest rates in Canada are at an all time low due to adjustments that have been made to mitigate the economic impacts of COVID-19. This is good news for some borrowers who have been able to take advantage of lower interest rates to refinance or consolidate their debts.
If you’re still in a relatively good financial situation despite some of the financial hardships inflicted by the pandemic, now could be a good time to borrow money or refinance.
Bottom line
Low interest personal loans can help you save money and repay your loan faster. The main downside is that they’re usually reserved for borrowers with good credit or assets to borrow against. Find out more about how low interest loans work and compare providers to see if you qualify today.
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