The best debt consolidation loans in Canada help you manage your payments better and save money. Banks and credit unions offer debt consolidation to people with good to excellent credit. They’re a strong option if your finances are in good shape. If you can’t or don’t want to qualify with a traditional lender, however, you can try an alternative lender.
This guide primarily focuses on alternative lenders that offer some of the best debt consolidation loans in Canada. They tend to provide easier approval than banks, but they may also charge higher rates.
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To find the best debt consolidation loans, compare the following features:
Get an annual percentage rate (APR) that’s lower than what you’re currently paying for all your debts. If, for example, you’re paying 20% APR on credit card debt and are offered a debt consolidation loan with a 35% APR to pay off that debt, you’ll pay more with the debt consolidation loan. That’s why it’s important to carefully compare the best debt consolidation offers and not simply assume you’re getting a better deal on a new loan.
APR is the annual interest rate plus fees you must pay to get the debt consolidation loan. Some lenders advertise the annual interest rate separately from the fees, but you should instead look at the APR so you know the total cost of the loan. Compare personal loan rates in Canada.
The best debt consolidation loans have little to no fees. Watch out for fees to process your loan, such as origination or admin fees, which may be included in the APR. Also, look out for NSF fees ($25 to $50 is common), late payment fees (fixed dollar amount or a percentage of the outstanding payment), loan insurance and prepayment penalties (uncommon for debt consolidation loans).
Choose a lender that can approve the amount you need. Lenders differ in how much they can offer a borrower. If you find that you can’t get approved for the full amount you need to consolidate your debt, it may still be worth consolidating even a part of it. Remember that the goal of getting the best debt consolidation loan is to save money and pay off your debt faster. Even a smaller consolidation loan can help accomplish that.
When deciding on the best debt consolidation loan in Canada for your needs, you’ll need to find the balance between monthly payments and the shortest loan term you can afford. Even if a long loan term and smaller monthly payments may seem appealing, you could end up spending a lot more money in interest in the long run.
If you have fair or bad credit, focus on lenders that specialize in loans for your credit score. Many of the best lenders listed in this guide also offer bad credit debt consolidation loans in Canada, including Loans Canada and Spring Financial. If you have good to excellent credit, focus on lenders that offer low-interest loans.
Lenders of the best debt consolidation loans will not pressure or rush you to sign and will make sure you understand the terms of your loan.
The best debt consolidation loans will increase your credit score as you make on-time payments. Prioritize lenders that report payments to the credit bureaus.
An unsecured debt consolidation loan is the more common way to consolidate debt, but some lenders also offer secured debt consolidation loans.
Requirements vary by lender, but you typically need to meet the following criteria:
| Criteria | Sample of documents required |
|---|---|
| Canadian citizen/resident and the age of majority in your province (18 or 19 years old) | Government-issued ID, like a passport or driver’s licence |
| Meet minimum income requirements | Pay stubs, bank statements, tax returns |
| Meet minimum credit score requirements | Consent to have your credit score checked and provide your Social Insurance Number in some cases |
| Active bank account | Direct deposit information |
No. Steer clear of lenders offering guaranteed consolidation loans in Canada because this could be a scam. Legitimate lenders will first take a look at your finances before approving.
You can increase your chances of getting approved for a debt consolidation loan if you offer collateral or have a guarantor or cosigner, but if you’re facing legitimate financial hardship and struggling to keep up with your debts, you may want to look into debt relief options.
According to data released in the Finder: Consumer Sentiment Survey Q2 and Q3 2023, fewer Canadians were focused on managing their debt, with 3% planning to take out a debt consolidation loan in the third quarter of 2023, compared to 17% in the second quarter of 2023.
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