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Installment loans in Canada are designed to cover one-time expenses that need a quick fix. Read on to learn about installment loans and decide whether they are the right product for you.
The term “installment loans” can cause some confusion because there are some competing definitions here in Canada. Let’s break those down here:
For this article, the third definition applies.
You can generally use installment loans for any legitimate purpose. However, it might be best to save them for emergencies, since they can come with higher interest rates than other types of personal financing. You can use installment loans for:
This will depend on the loan and the lender. When you apply for a loan and are approved, you should receive a loan contract that will outline the fees and interest rate that will apply to your loan.
Here are the costs that may apply:
Use our monthly payment calculator below to see how much you’ll pay in both the short and long run:
| Your loan |
|---|
| Loan amount |
$ |
| Loan terms (in years) |
| Interest rate |
$% |
or
Compare installment loansSome alternative lenders offer both types of loans, while others only offer one or the other. Both are high-interest loans, but overall, installment loans have higher loan amounts, longer loan terms and lower APRs than payday loans. Learn more about payday loans vs installment loans.
You can apply for online installment loans if you have bad credit or low income, as long as you can afford the repayments. Generally, lenders will look at your income, credit history and employment information to determine your eligibility.
Basic eligibility requirements include the following:
Applicants with good to excellent credit scores are more likely to get a good deal on online installment loans. That’s because many lenders use underwriting software that rely heavily on your credit history when determining your eligibility.
With many online installment loans in Canada, be sure to do your research before signing a loan agreement. Much like payday loans, installment loans are expensive and can act as debt traps. Here’s what to look out for:
Under federal law it’s illegal for lenders and collection agencies to repeatedly contact borrowers outside of work hours, threaten them with jail time or garnish their wages without a court order. If you believe you might be a victim of a predatory lender — even a tribal lender — you can file a complaint with the Office of Consumer Affairs in your province or territory.
How you repay your installment loan will depend on the lender. Generally, you need to make monthly, semi-monthly or weekly repayments until your loan is completely paid off.
If your lender allows you to repay your loan ahead of time without charging a prepayment penalty, you could stand to save on interest. That is, as long as your loan repayments all go toward paying off interest and the amount you borrow.
It’s not uncommon for installment loan providers to charge interest-only repayments in the beginning, meaning that you can’t save on interest by paying it off early. Understand the terms and conditions of your loan before you apply for and accept it.
Repayment terms will differ depending on what type of loan you apply for and the lender you apply with. Generally, the following will apply:
| Repayment terms | Description |
|---|---|
| Loan terms | These vary between 6 months and 5 years. |
| Payment method | Lenders will usually automatically deduct payments from your bank account on the day the payments are due. Some lenders will also give you options of repaying the loan online, via a cheque or through an app. |
| Repayment frequency | You will usually repay the loan according to your pay schedule from work. If you get paid weekly, bi-weekly or monthly, you can arrange your repayments around this schedule. |
Taking the above factors into consideration, applying for and receiving an installment loan will likely affect your credit score in the ways listed below. Take note that some positively affect your credit score, while others may negatively affect it.
If you have all of the required information on hand and easily accessible, completing your application should take around 5 to 10 minutes.
There are some eligibility requirements, including a minimum age, proof of income and having an operational bank account. Furthermore, you will likely need to be a Canadian citizen or permanent resident.
You’ll have to provide personal details, employment details and your bank account details.
Technically, you can. However, since installment loans typically come with high interest rates, it’s probably not a good way to consolidate your debt and pay it off.
If you’re struggling to repay several short-term loans and your credit is bad, consider signing up for credit counselling. Credit counselling agencies can work with you to find a solution to your specific situation and offer advice on how to stay out of debt.
Anna Serio is a trusted lending expert and certified Commercial Loan Officer who's published more than 1,000 articles on Finder to help Americans strengthen their financial literacy. A former editor of a newspaper in Beirut, Anna writes about personal, student, business and car loans. Today, digital publications like Business Insider, CNBC and the Simple Dollar feature her professional commentary, and she earned an Expert Contributor in Finance badge from review site Best Company in 2020.
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