Compare debt consolidation loans

How does consolidating debt with a personal loan work?

A debt consolidation loan can help you roll your existing debts into one new fixed monthly repayment. The goal is that your new loan offers a lower interest rate and more favourable loan terms than all of you’re current debts.

When applying for a debt consolidation personal loan, you will need to select “debt consolidation” as the purpose on your application. The lender will transfer your approved funds into your bank account, which you then use to pay off your open debts — whether that’s credit card balances, bills or other loans. After paying off your debts, you’ll be left with one single loan to repay.

Should I get a debt consolidation loan?

Debt consolidation loan can be a good idea if you’re having trouble keeping up with multiple, high interest debts, like credit cards. If you can lock in a lower interest rate than you’re paying on your credit cards, than you could save money and pay off your debt faster. Having to make only one monthly payment can also be helpful if you tend to miss your payment deadlines.

You need to be careful that you don’t start building up credit again on those credit cards you just payed off with your new debt consolidation loan. If you do start using your credit cards again before paying off your consolidation loan, you could end up in even more debt then when you started. Making and sticking to a realistic budget can help you stay out of debt.

Pros and cons of using debt consolidation loans

Can I get a unsecured debt consolidation loan in Canada?

Yes, you can get an unsecured debt consolidation loan in Canada, but your interest rates will likely be much higher than with a secured loan. Because an unsecured debt consolidation loan doesn’t require any collateral to secure it, lenders consider the loan much riskier since they could end up with nothing if you default. To compensate for that risk, lenders tend to charge high interest rates.

That’s why it’s important to make sure the interest rate on the unsecured consolidation loan is lower than what you’re currently paying, or it may not be worth worth consolidating your debt.

Read our guide to unsecured debt consolidation loans

How to compare debt consolidation loans in Canada

When finding the right debt consolidation loan for your financial situation, it’s important to compare a variety of different loans and lenders. Consider the following factors:

• APR. Interest rates and fees combine to show you the annual percentage rate of your loan, which is the true cost of your loan. Compare a variety of loan APR’s to see how much you could save over time by paying different rates and fees.
• Loan amounts. Bundling together your debts is part of the appeal of debt consolidation, since you’ll be able to make one single monthly repayment instead of multiple payments. Find a lender who is willing to offer you the amount you need in order to bundle all of your debts together.
• Fees. Origination fees, early repayment penalties, late and returned payment fees — these can all eat away at how much you can save when moving your debts to one single loan. Compare the fees offered by lenders and see if you can negotiate out of any.
• Repayment term. How long you take to repay your loan will affect your monthly payment and the total cost of your loan. A longer term generally results in lower monthly repayments, but a higher loan cost.
• Borrower reviews. Reviews can help you evaluate a provider’s marketing and customer service against real-life customer experiences, providing insight into what you can expect from a lender.

How much will a debt consolidation loan cost me?

Ideally, a debt consolidation loan won’t cost you anything you weren’t already going to pay in interest with your existing loans.

• While some debt consolidation loans come with origination fees — usually 1% to 5% of your loan amount that’s often deducted before you receive the money — it’s possible to find a consolidation loan offering no upfront fees.
• When weighing consolidation loans, your APR and monthly repayments are two other costs to consider. Typically, you need to have excellent credit and a low debt-to-income ratio to qualify for the lowest APRs that range from 4% to 12%.
• You might be concerned about immediate costs. If this is the case, a loan with a longer loan term could meet your needs. You’ll end up paying more over the life of your loan, because your interest accumulates over a longer term. However, your monthly repayments can be significantly lower than with a shorter term.

How much could you save with a debt consolidation loan?

Let’s imagine you’re carrying low interest rate loan and 2 credit cards — one that you’ve nearly maxed out to pay emergency bills and another filled with general spending. With a new job and a determination to get your debt under control, you decide to look into a debt consolidation loan.

You would save $661.90 by consolidating your debt to a 3-year term personal loan offering a fixed 9% APR.

Balance transfer credit card vs. debt consolidation loan

Balance transfer credit cards can offer exciting perks, like 0% or low interest for a specified number of months on transferred balances. However, once the intro period is up, you’ll face a higher revert APR.

Here’s how balance transfer credit cards compare to debt consolidation loans.

Summing it up: Which is better?

Deeper dive into balance transfers vs. debt consolidation loans

5 reasons you may have been denied

There are several reasons your debt consolidation loan application might have been rejected — even if you thought you had strong personal finances. Often you can find out why you’ve been rejected by contacting your lender. It’s likely it denied your application for one of the following reasons:

Outstanding debt

It can be difficult to qualify for a debt consolidation loan if you have a large amount of outstanding debts, like federal student loans. Even if you don’t plan on consolidating all of these debts, they could still hurt your application.

This might come as a surprise to borrowers on an extended or income-based repayment plan, which gives them a low debt-to-income ratio (DTI). But any large loan in your name gives you a high credit-utilization ratio, which lenders tend to view unfavorably.

Insufficient income

Borrowers with a debt load within the lender’s range might get rejected because they don’t bring in enough money each month. Generally, if your debt is worth more than half of your annual income, you won’t be able to qualify for a loan.

Lenders also look at your DTI, which weighs your monthly debt obligations to your monthly income. A DTI of 36% or less is typically considered good. Most lenders don’t work with borrowers that have a DTI over 43%.

debt-to-income ratio (DTI)

Low credit score

Most lenders have a minimum credit score requirement — even if they don’t advertise it.

If your credit score has taken a dive recently, you’ll have trouble getting approved for any type of loan. Even if you can, you likely won’t get approved for one with more competitive rates and terms than what you already have.

Insufficient credit history

Lenders prefer borrowers who have an established history of paying off debts on time — some even have a minimum requirement of at least three years.

If you’re new to borrowing and repaying debt, you might want to fatten up your credit file by applying for a credit card or credit builder loan before taking out a debt consolidation loan.

No collateral to back your loan — or not enough

Some debt consolidation lenders require you to back your loan with collateral. If your personal assets are insufficient to secure your loan, your application could get rejected — even if you meet all of the other criteria.

I know why I’ve been denied. What are my alternatives?

If you’ve been denied for a debt consolidation loan, you might need to change your approach before you apply again. Or you could consider other options that might be a better fit for your personal situation.

Find a cosigner

Adding a cosigner with a stronger credit history, higher income or lower debt load can help you meet a lender’s requirements. It can also help you qualify for more competitive rates and terms — even if you can meet the requirements on your own.

However, not all lenders allow borrowers to apply with cosigners. You can find a lender that does and learn how it works with our guide to cosigner loans.

Apply for a bad-credit debt consolidation loan

When your credit score is what’s preventing you from getting approved for a debt consolidation loan, you might want to consider applying with a lender that works with all credit types.

Bad-credit debt consolidation loans tend to come with less favorable rates and terms, but you’ll have an easier time getting approved if a cosigner isn’t an option.

Get a home equity loan

If you’re a homeowner or currently paying off a mortgage, you can use your home as collateral for a loan to consolidate debt. You could consolidate student debt with a home equity loan as well as many other types of debt. With a home equity loan or line of credit, you can often borrow up to 80% of the value you own in your home.

Like with other secured loans, providing collateral can increase your chances of approval and help you qualify for more competitive rates. But you stand to lose your home if you can’t pay it back.

Explore debt relief options

Got a DTI over 43%? Have a debt load higher than half of your annual income? A debt consolidation loan might not do you much good when it comes to getting out of debt.

Instead, you might want to set up an appointment with a nonprofit credit counseling agency. It’ll help you weigh your options and decide which is the best path to take.

In more extreme cases, you might want to consider debt management, where a credit counseling agency negotiates with your creditors for more favorable rates and terms. Or another option is debt settlement, where a company negotiates with your creditors to reduce your balances in exchange for a one-time repayment.

Compare debt relief options

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Debt.ca		Varies (depends on the company you're connected with)	Have at least $10,000 in unsecured debt and a hardship that is preventing you from paying your creditors	Go to site More Info	Debt.ca is a nationwide service that can help you find a solution to reduce your debt payments by up to 50%. Request a free consultation with a trained debt relief specialist and start your journey towards being debt-free today.	Compare	loading Fetching your data...

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Bottom line

A personal loan could help you consolidate multiple debts into one single monthly repayment — potentially one with lower rates and fees or shorter terms than you’re paying now. Before you apply for a loan, compare multiple lenders to find one that works best for your financial situation.

If you’d like to learn more about how to manage your debt, check out our debt consolidation guide.

Frequently asked questions

• Will I be able to consolidate all of my debt with one loan?

  It depends on your credit profile and eligibility. Lenders look at your total existing debt, your overall creditworthiness and even the type of credit accounts you hold when considering your approved loan amount, rates and terms.

  Many lenders allow you to get pre-approved for a loan without doing a hard pull on your credit score, allowing you the chance to see potential offers without knocking your credit score.

  If your debt totals more than $35,000, you may have trouble finding a loan to consolidate your debt into one place. Some lenders offer up to $100,000, however it may be harder to find this loan amount.

• Are debt consolidation loans safe?

  As a tool, yes. It comes down to finding a legitimate lender.

  You’ll find many reputable lenders offering debt consolidation. Look for privacy and security policies on a lender’s website, and read user reviews to get a feel for any lenders you’re considering.

• Can I get a debt consolidation loan with bad credit?

  Low credit doesn’t necessarily stop you from getting a debt consolidation loan. Certain lenders offer bad credit personal loans, but you likely won’t be eligible for the best rates unless you have a good to excellent credit score.

• Will a debt consolidation loan help me get out of debt faster?

  It might. Your current APR, monthly repayments and total interest can decrease with the right debt consolidation loan — ultimately saving you money.

  However, these loans are often in terms of three to seven years. This may be longer than it would take to pay off one or more of your individual debts. Even if it is, it’s worth considering the amount of money you’d save and the convenience of having your debt in one place before ruling out a debt consolidation loan.

• Will a consolidation loan hurt my credit score?

  A consolidation loan can both hurt and help your credit score. Applying for any loan temporarily lowers your credit score when the lender runs a hard credit check.

  However, it can often improve your credit if you pay it back on time by building your credit history and lowering your credit utilization ratio. If you’re late on a repayment or default, though, it’ll hurt your score.

  Learn more about how this works with our guide to debt consolidation and your credit score.

• Is it hard to get approved for a debt consolidation loan?

  It depends on your personal financial situation and the lender. If you just need help organizing your debt and have strong income with low DTI, you might not have trouble getting approved for many debt consolidation loans.

  Still, if your credit score is less than stellar or you’re struggling to pay your monthly bills, you might have better luck getting approved with a bad-credit debt consolidation loan provider.

• Do I qualify for a debt consolidation loan?

  Every lender has its own eligibility requirements — some work with all credit types, while others require good or excellent credit.

  However, you’ll likely need to have an established credit history, regular source of income and be a Canadian citizen or permanent resident to qualify with even the most lenient lenders. You’ll also need to be the age of majority in the province or territory in which you live (either 18 or 19 years old).

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