At some stage, we all need or want more money than we have. So what do we do? The answer might be charging the credit card, asking mom and dad or working hard for a pay rise. However, for many Canadians, the answer is taking out a personal loan. Finder surveyed 1,200 Canadian adults to find that 65.33%, or 19.52 million, Canadians have taken out a personal loan.
Top reasons people take out a loan
Funding a new set of wheels is the number one reason Canadians take out personal loans. According to the survey, 41.25% of those surveyed took out a personal loan to buy a car, more than double the amount of the second common reason – financing a mortgage (19.5%).
A number of Canadians (15.75%) also use personal loans to consolidate their debt by melding them together and, hopefully, cashing in on a lower interest rate. In a similar vein, Canadians are also taking out personal loans to pay off their credit cards (13.92%).
A decent portion of people use personal loans to fund renovations (13.17%), possibly thinking they can add some value to their home with a new kitchen or bathroom. Canadians are also using loans to pay for their higher education (10.92%), which could help them earn a higher salary down the track. This 2017 StatCan census report found that both men and women with a bachelor’s degree earned more than those with a college, high school or trades education.
Wondering how your neighbours could afford to go to Cabo for three weeks? They might have taken out a personal loan to fund their travel. Although, only 7.5% of survey respondents said they took out a personal loan for this reason.
Other reasons for taking out a personal loan include paying for a wedding (2.67%), covering medical expenses (2.75%) or paying for a funeral (1.75%).
2020 has been incredibly difficult, with both everyday Canadians and business owners feeling the financial strain brought on by COVID-19. Perhaps this is why over one-quarter of Canadian adults (26%) say they plan to take out a loan in 2021, according to a survey conducted by Finder. As it stands, 12.84% plan to take out a personal loan, 2.21% plan on getting a business loan and 10.80% are planning on getting both, meaning roughly 7.3 million people will be getting a personal loan in 2021.
When asked the likelihood that they’ll take out a personal loan in the before the end of 2021, a combined 28.4% said it was either likely (18.03%) or very likely (10.37%) they would get a personal loan.
Men more likely to get a loan in 2021
Men are 10 percentage points more likely to be planning on getting a personal loan in 2021, with a combined percentage of 28.72% of men planning on getting a loan compared to 18.24% of women.
And while roughly a quarter (24.44%) of women say it’s either likely (16.18%) or very likely (8.26%) they’ll get a personal loan, almost a third (32.31%) of men said the same at 19.83% likely or 12.48% very likely.
Younger Canadians more likely to be looking for a personal loan in 2021
Over a third (35.04%) of generation Z are planning on taking out a personal loan in 2021, with millennials just a touch behind at 32.11%. Generation X comes in third at 17.75%, with boomers the least likely to be looking for funds, with only 8.29% planning to get a personal loan.
While generation Z has the most people planning on getting a personal loan, it’s the millennials who think they’re most likely to need one, with almost two-fifths (39.9%) being either likely (26.1%) or very likely (13.8%) to get a personal loan in 2021. Generation Z follows closely behind with a combined percentage of 35.9% and then generation X at 21.3%. Once more, the boomers are the least likely to get a personal loan, with only 11.92% saying they’re likely to get one.
Almost a third of Saskatchewanians plan to get a personal loan
Close to a third (29.73%) of Saskatchewanians said they plan to get a personal loan before the end of 2021, closely followed by Quebecers (27.45%) and Albertans (25.98%).
Quebec takes first place with the highest percentage of its population saying they’re likely to get a personal loan in 2021, with a combined percentage of 37.25% saying they’re either likely (25.88%) or very likely (11.37%) to get one.
Does your income affect your plans to get a loan?
If you earn between $100,000 and $119,999, there’s about a one-in-three (31.71%) chance you’re planning to take out a personal loan in 2021. Those least likely to be planning on getting a loan (17.51%) earn under $20,000.
Those earning $100,000 to $119,999 are also the most likely to get a personal loan, with 34.15% saying they’re likely (14.63%) or very likely (19.51%) to be looking for funds in 2021.
Decided you need a personal loan? Here are some tips on getting approved.
- Make sure you meet the criteria. To qualify for a personal loan in Canada, there are five main factors lenders consider. These include your income, employment, credit history and loan security as well as your assets, which include your debts and expenses. These factors not only influence your chances of approval, but could also affect the rate of interest on the loan.
- Build a solid credit history. A great credit history is the best way to secure a low interest loan because lenders use this to determine whether you’re a trustworthy applicant. If your credit history isn’t up to scratch, you might consider taking out a credit builder loan to help repair the damage.
- Lower your debt to income ratio. Generally, lenders want to see a debt-to-income ratio of less than 40%. This is the percentage of monthly income that goes towards paying off your debt. You can lower yours by bringing in more money each month and paying down your existing debt.
- Make extra payments. By exceeding your typical monthly payment, you can chip away at your loan while saving on interest. Make biweekly repayments. Paying off your loan in half-repayments every two week can feel like you’re paying the same amount each month while shaving off at least a couple of weeks.
- Refinance or consolidate. When better rates are offered, it’s wise to jump on them because you’ll ultimately end up saving money. And, if you consolidate multiple loans, you’ll save yourself the headache of having two or three different payments a month.
- Get a balance transfer credit card. Sometimes credit card providers will offer interest-free and low balance transfer rates. This is a smart decision if you have a small amount to pay off on your loan. You’ll pay no interest if you can lock in a card with a 0% balance transfer rate, but, be careful to pay attention to the time frame of the promotion.
- Save your change. You’d be surprised how fast your nickels and dimes add up. Look for an app that will round up change from purchases made with a card and use your savings for an extra payment.
- Take advantage of discounts. Some lenders offer you a slight discount for either going paperless or enrolling in autopay, don’t sleep on these savings.