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How to apply for a personal loan
Read our step-by-step guide on how to apply for a personal loan online from start to finish.
Curious about the personal loan application process? A personal loan is a handy tool to cover any large expenses. You can apply for a personal loan online within minutes to get pre-approved for the funds you need.
Here’s our step-by-step guide to complete an application, what you’ll need to prepare and how to increase your chances of approval whether you have bad credit or no credit history at all.
How to apply for a personal loan online
Whether you need a lump sum of cash to pay down debts, take a vacation or make renovations to your home, applying for a personal loan online is quick and easy to do. Follow these steps:
1. Fill out the application with your personal details
Your first step in securing a personal loan is filling out an online application. The majority of online applications can be filled out in less than 10 minutes. You will be asked for the following information:
- Your full name.
- Your date of birth.
- Your address.
- Your Social Insurance Number.
- Your status in Canada (citizen, permanent resident, etc).
- Your employment details, including your employer and length of service.
- Your monthly income.
- How much you’d like to borrow and the purpose of the loan.
- Your preference for loan terms, interest rates and whether you’d like to secure your loan with collateral.
- Your contact information (phone number and email address).
2. Wait for pre-approval
Many lenders, including banks and credit unions, offer pre-approval. The pre-approval step gives you a chance to review your potential rate and loan term options, so you can compare offers from different lenders.
After you submit your application, your lender will use this information to determine whether it can approve you for a loan. Keep in mind, a pre-approval offer isn’t finalized: you’ll need to back up the information you provided with proof of employment, pay stubs and other documents to verify your identity. Your lender may even change your loan terms after doing a hard pull on your credit file.
You can count on online lenders providing a fast pre-approval, sometimes within minutes of submitting your application.
Your lender will usually do a soft credit check, which does not impact your score, but some may go straight to the hard credit check.
3. Discuss loan offers with a representative
Your next step in securing a personal loan is working with a loan officer at your lender of choice to set up the loan and your terms. You are under no obligation to accept the entire amount a lender has pre-approved you for. Only borrow what you need and can afford to pay back to avoid unnecessary debt.
Work with your loan officer to determine the terms of your personal loan, including the following:
- How much you’d like to borrow.
- Your repayment terms.
- Your interest rate and interest type (fixed vs variable).
- Whether you’re securing your loan with an asset.
- Your repayment plan (weekly, fortnightly or monthly).
- Whether you’d like to automate loan repayments so they’re withdrawn directly from your account.
Now is the best time to iron out the details of your loan, including the following:
- Whether you can make early repayments for some or all of your loan without incurring any penalties.
- What charges and fees you may incur for late or missed payments and NSF charges.
- Whether you can refinance the terms of your loan.
- Whether your lender provides perks, such as the ability to skip a payment once a year.
4. Proceed with a loan offer and provide the required documentation
Now that you’ve zeroed in on the lender you’d like to work with and you’ve brokered a personal loan that suits your needs and preferences, you can move ahead with verifying your identity and income.
Having the required documents on hand can make the application process go a lot faster – the sooner you can get them in, the sooner you can get approved.
Ask your lender which documents it requires before you get started. Typically, it includes the following:
- Valid government-issued ID. Lenders generally accept driver’s licences or passports.
- Proof of employment. Generally, lenders ask to see your last 3 pay stubs or your last 2 T4s.
- Proof of address. Your lender may need official mail or documents with your full name and address on them.
- Bank statements. This shows lenders how much money you have and can act as proof of employment if you work for yourself.
- Social Insurance Number (SIN). Your lender needs your SIN to check your credit score.
- Employer’s contact information. Some lenders ask for your company’s contact information – and sometimes information about your former employers.
5. Wait for official approval
Once you’ve submitted the required documents to verify your identity and your income, your lender will pull a hard credit check. It will verify all the information you’ve provided and do a more in-depth review of your finances. If everything checks out, your lender will give its final approval.
6. Review and submit the contract
You’re in the clear! After your lender has completed its due diligence, it will provide you with a final loan offer, including how much you’ve been officially approved for, your loan terms and all of the details you discussed while negotiating your loan’s terms and conditions.
Review your contract carefully to make sure you understand what you’re signing up for. If you’re happy with the loan offer, sign off on the contract.
Review these factors before signing the loan agreement
- Monthly cost. Use our monthly payment calculator to find out how much it’ll cost you each month based on the loan amount, APR and terms. If you don’t think you can afford it, don’t sign the contract.
- Total cost. Some loans with low monthly costs will end up with a total interest cost that’s more than the amount you borrowed. In a pinch, it still might be worth it. But otherwise, it’s not.
- Fees. Lenders sometimes tack on an origination or processing fee to your loan after you agree to the offer. You’ll either receive less funds than you applied for, or have to repay a higher balance than you receive.
- Terms and conditions. Actually read your loan contract before you sign it to look out for red flags, like blank spaces where lenders could put in additional terms.
7. Get your funds
The final step is receiving the funds for your personal loan. Your lender will transfer funds over to you either via direct deposit or by Interac e-Transfer, usually within a few business days. Some online lenders move even faster, transferring your personal loan funds within minutes after you’ve been approved and you’ve submitted the signed loan contract. Your personal loan will be provided in a lump sum amount for you to use as you need.
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I’m not ready yet. What should I do before applying?
Before you start with a loan application, it’s wise to figure out what type of loan you need. Personal loans can run the gamut from smaller personal loans of up to $5,000 to large sums of money of up to $50,000. You can choose between secured and unsecured loans and fixed or variable interest rates too.
If you’re thinking about applying for a personal loan, here are 6 key steps you should consider first:
1. Decide how much money you need
First off, ask yourself these 3 important questions:
- How much do I need to borrow?
- What do I need these funds for?
- Do I have the ability to repay this loan and make monthly loan repayments?
These questions will help you determine what your loan needs are and if you can realistically repay the loan so you aren’t shouldering more unnecessary debt.
The amount you borrow should be based on your current financial circumstances, such as the expense you’re trying to cover and your income. It’s better to determine how much you can spend each month and borrow less than your maximum so you can avoid stretching yourself too thin.
Use our personal loan affordability calculator to determine how much you can borrow.
2. Find the right type of loan
There are a number of personal loans that are appropriate for different borrowers. Common types of personal loans include the following:
- Secured loans. Secured loans come with the lowest interest rates because they require some sort of collateral, such as your house or car, to secure your loan.
- Unsecured loans. Because unsecured loans don’t require collateral, lenders rely heavily on your credit score to determine your eligibility. These loans typically come with higher interest rates.
- Cosigner loans. If you don’t have any credit history or your credit has taken a beating over the years, you may need to ask a family member or close friend to cosign your loan to help you qualify.
- Fixed rate loans. With fixed-rate personal loans, you will lock in an interest rate at the beginning of your loan term so your repayments stay the same throughout the duration of your loan.
- Variable rate loans. Variable rate personal loans have fluctuating interest rates throughout the term of your loan depending on market conditions.
- Personal line of credit. While personal loans give you a lump sum of funding you need to repay within a fixed amount of time, a line of credit stays open as long as you keep up with payments and you only pay interest on what you withdraw.
- Debt consolidation loans. If you’re juggling multiple debts and having trouble keeping up with different due dates, a debt consolidation loan rolls together all of your debts into one single debt, with a set interest rate and a single adjusted loan term.
3. Decide on the right type of lender
You have a wide range of options when it comes to what type of lender you’d like to work with. Factors like your credit score may limit your options, though. Lenders providing personal loans include the following:
- Banks and credit unions. Banks and credit unions tend to offer a more hands-on experience with more competitive rates and terms; however, the application process will usually take longer. You will need good to excellent credit to get approved for a loan via these routes, so if your credit isn’t in great shape, these may not be viable options on the table for you.
- Online lenders. With plenty of online lenders flooding the market, you may have better luck with these options. They tend to have fast application and funding processes – but may come with higher interest rate offers. Online lenders are the main providers of bad credit personal loans.
- Peer-to-peer lenders. P2P lenders are everyday Canadians that lend you funds through a regulated online platform like goPeer. You and the investors remain anonymous. To qualify for a P2P loan, you need good to excellent credit.
With these options in mind, you will need to consider whether you can qualify for a personal loan via a traditional lender and what you value most (speed in approving and funding your loan versus securing a lower interest rate).
4. Check your credit score
Checking your credit score is important to figure out what loan amounts and interest rates you may be able to qualify for. Across the board, if you have a good credit rating, lenders will offer you a lower APR. However, if you have bad credit, you may need to consider getting a cosigner in order to qualify or pay higher interest rates.
Check your credit score and history for free through each of the 2 major credit bureaus (TransUnion and Equifax). The better your score, the better your chance to be approved for the loan amount you want at a competitive rate. While not set in stone, the following are the general credit tiers:
- Excellent credit score: 760-900
- Very good credit score: 725-759
- Good credit score: 660-724
- Fair credit score: 560-659
- Poor credit score: 300-559
5. Check the lender’s requirements
Don’t waste time applying for a loan that you’re not eligible for. You may find the lender and personal loan product of your dreams only to learn you don’t meet the eligibility requirements. Doing your homework on whether you meet the minimum requirements will help you hone down your list of options.
Take stock of basic eligibility requirements, including the following:
- Credit rating: Varies, but many lenders will want you to have a credit score of 650 or higher.
- Annual income: Varies, but may be as low as $12,000+ annually or as high as $25,000+ annually.
- Credit history: You will usually need a credit history for at least 1 year to qualify.
- Debt-to-income ratio: You’ll usually need a debt-to-income ratio (DTI) of 43% or lower.
Additional eligibility criteria include the following:
- Active chequing or savings account.
- Over the age of 18, or the age of majority in your province or territory.
- Canadian citizen or permanent resident.
- Regular source of income.
6. Compare providers and read the fine print
The way to find the best personal loan for you is to decide what you want and then to compare all of your options to make sure you’re getting a competitive deal.
When comparing lenders side-by-side, ask yourself the following questions:
- How much is this lender charging in APR?
- How much is this lender charging in fees? How does this compare to other similar loans?
- Does this lender provide me with the option to pay off some or all of my loan ahead of schedule without incurring any fees or penalties?
- Does this lender provide me with perks like skipping a payment once a year?
You should also be on the lookout for red flags that could indicate a scam. You’ll want to make sure your lender is registered in your province or territory and has plenty of business information available so you can rest assured you aren’t giving your banking details to a fake company.
How can I apply for a personal loan with bad credit or no credit?
If you have bad credit or no credit history at all, don’t rule yourself out. You can still apply for a personal loan with bad credit, and you still have viable options to apply for a personal loan with no credit, too.
Here’s what to keep in mind before you apply for a personal loan with bad credit to ensure you’re putting your best foot forward:
Applying for a personal loan with bad credit is a lot like applying for an ordinary personal loan. However, you might have to work a little harder to find the best deal. You’ll need to emphasize these steps in the loans process:
What happens after I apply?
The application process may vary slightly from lender to lender, but generally they all follow a format similar to the one above.
Receive your loan funds
Many lenders and banks require that you have a chequing account to receive your loan via direct deposit – but that’s not always the only option. Some lenders will be able to send you a cheque — if this is important to you, ask your lender how it transfers funds.
Spend your loan
In most cases, you are free to spend your loan funds on whatever you’d like, as long as it’s legitimate. However, some lenders will not allow you to use your loan funds for post secondary education. If you took out a loan for something specific, like buying a car or consolidating debt, you should spend your loan funds on that.
Make your payments on time
It’s very important to make your payments on time so you don’t end up paying extra in fees or hurting your credit. Be sure to verify how you’ll need to make repayments. Will the lender automatically withdraw the funds using a pre-authorized payment or can you pay by phone with a credit card, online through the lender’s website or by mailing a cheque? Is there an automatic payment option? These will impact which lender you choose and how you’ll pay off your debt.
Do I have to accept a loan offer?
No, you don’t have to accept a loan offer just because you applied. After you’re approved for a loan, you have a chance to review the rates, terms and other conditions first. You won’t be on the hook for a loan until after you’ve signed your promissory note — otherwise known as your loan contract.
What happens if I don’t accept an offer?
You won’t receive the funds and won’t be responsible for repaying the loan. However, there can be a few negative consequences:
- Lose your application fee. While most lenders don’t charge an upfront application fee, some do. You have to pay this before you apply, meaning if you get rejected or decide not to take out the loan, you’re out that amount.
- Credit score takes a hit. In most cases, lenders run a hard credit check when you apply for a loan, which can lower your credit score. This can hurt your chances of getting a competitive rate if you decide to apply for a loan elsewhere.
How long do I have to decide?
That depends on the lender. Some might expect an answer right away. Others might give you a window as long as a week, two weeks or even 30 days to decide if you want to take out the loan. After you receive an offer, the lender should let you know how long you have to accept it before it expires. If it doesn’t, reach out to customer service.
6 reasons to reject a loan offer
There might be potential negatives to rejecting a loan offer. But taking out a loan that’s not right for you can be expensive and ruin your credit. Here’s when you should say no:
- You can’t afford repayments. If your loan amount, rate and term give you a monthly cost that’s way outside your budget, saying “yes” can set you up to default.
- You’ve qualified for a better deal elsewhere. While some lenders might match rates from another provider, most don’t.
- Your financial circumstances changed. Getting laid off, injured or facing any other unexpected hit to your monthly income might make you want to rethink getting a loan.
- You found free funding somewhere else. Loans are meant to cover costs you can’t foot any other way. If you’ve suddenly come into money, it’s usually best to use that money instead.
- You don’t agree with the terms and conditions. You’ve read the contract and you don’t like everything you’re agreeing to — maybe it comes with high late fees or reserves the right to change your rate at any time. Now is the best time to walk away.
- You think it could be a scam. If anything about a lender sets off your alarm bells — maybe it’s asking for payment in the form of gift cards — don’t sign the offer.
Can I return a loan after I’ve received the funds?
That also depends on the lender. Some personal loan providers give you a day or two after accepting a loan to cancel it. Others might give you as long as a month. But return periods are more common with student loans than personal loans.
If you no longer need the loan, pay it back as soon as possible — even if there is no return period. The longer you wait, the more you’ll have to pay in interest.
Bottom line
Personal loans can be a viable option to consider when you’re in need of funds. Understanding the ins and outs of the process can help you confidently decide on the right loan to apply for, help you gather the right documents and ensure your application process is smooth and simple. Once you’ve done your research, you can apply for a personal loan online with ease.
Frequently asked questions about getting a personal loan
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