Applying for a Personal Loan: Everything You Need to Know

Are you in dire need of a vacation getaway but are short on funds? Do you want to raise the value of your property with some home renovations?

There a ton of reasons why you might need a personal loan, and just as many reasons why you could benefit from it. But first, let’s explore personal loans and the key ways they can be used to reach your financial goals.

What is a personal loan?

A personal loan can be used for a variety of purposes, from education fees and car repairs to business costs and travel expenses. Personal loans are especially beneficial to pay off debts at a lower interest rate than most credit cards.

What should you look for before applying for a personal loan?

Before jumping into a loan application, it’s important to do your research.

Find an appropriate lender. Interest rates and loan plans vary from lender to lender. Ensure you give yourself ample time to find the right one. We strongly advise that you avoid waiting until the last minute when you feel rushed and anxious.

Create a budget plan. What do you have vs. what do you need? Answering this will give you a good idea of the amount of money you can borrow and pay back on time without any trouble.

Determine what kind of personal loan you need. There are so many types of personal loans to choose from that it could easily get confusing. The best way to discover the type of loan that’s right for you is to determine the amount you want to borrow.

Below are the two most common personal loans in Canada, both of which offer monthly repayment plans:

Secured Loans

A secured loan requires the borrower to offer a personal asset as collateral, such as a house or a car. This allows the lender to cover a loss until the borrower is able to repay their loan. The advantage of a secured loan is that it normally involves a low-interest rate.

Unsecured Loans

These are easier loans to obtain, in that they don’t require a credit score or personal asset as collateral. The amounts in these types of loans are small, varying between $100 and $500. Because unsecured loans are a greater risk for lenders, the interest rates are usually higher.

Steps to Getting a Personal Loan

Compare different lenders. Shopping around is an important step to saving in the long term. Do an extensive online search, ask around, read reviews—the goal is for you to get the most out of your loan, including lenders that offer transparency and reliable customer service like

Compare rates and plans. Not all lenders offer the same rate, but generally, the cheaper the loan, the lower the interest rate. Also, to avoid any unpleasant surprises, inform yourself about the repayment plan; i.e. the minimum monthly payments.

Understand what you’re getting into. Take the time to go over the application process. It may vary from lender to lender, but most of them can be done online; however, this doesn’t necessarily imply that you will get an instant response. It can take from hours to weeks to receive an acceptance or rejection.

If you need the money quickly, it’s best to call the lender directly and ask what the wait time is, or if they may be able to speed up the process.

Collect all the documents. Requirements may differ with every lender, but most of the required documents include an ID such as a driver license, proof of income, and your credit score.

TIP: Your credit score can take weeks to arrive, depending on the agreements between your bank and the credit bureau you select, so make sure you allow yourself enough time to receive it.

Read the terms and conditions agreement. While we often avoid reading these long and tedious texts, it’s important in this case that you read all the conditions of your contract. Ensure you fully understand and agree with the payment method, the terms of the loan, and the late payment penalties.

Follow these step-by-step instructions in order to ensure you apply for the right type of loan!

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