Best Banks For Personal Loans In Canada For May 2024

We reviewed 76 popular lenders based on 17 data points in the categories of loan details, loan costs, eligibility and accessibility, customer experience and the application process. We chose the 10 best lenders based on the weighting assigned to each category:

• Loan details: 20%
• Loan cost: 25%
• Eligibility and accessibility: 30%
• Customer experience: 15%
• Application process: 10%

Within each major category, we also considered several characteristics that would benefit those with bad credit in particular, including awarding an extra five points for lenders offering a low maximum APR, a low minimum credit score, a high maximum loan term and cosigner/borrower capability. Finally, we evaluated each provider’s customer support tools, borrower perks and features that simplify the borrowing process—like prequalification options and mobile apps.

Where appropriate, we awarded partial points depending on how well a lender met each criterion.

Bank loans are designed to provide a fixed amount of money that you can pay back over a predetermined period of time. Canadian borrowers can typically access loan amounts ranging from $1,000 to more than $50,000, depending on their creditworthiness.

The repayment period for personal loans is quite flexible, spanning from one to as many as 10 years. This flexibility allows borrowers to tailor their repayment schedule to their financial situation, striking a balance between manageable monthly payments and overall interest costs.

Interest rates on these loans vary significantly, usually between 5% to 35%. The rate you receive is heavily influenced by your credit score: a healthy credit history often leads to lower interest rates, making the loan more affordable in the long term. On the flip side, borrowers with poor credit scores may face higher rates, reflecting the increased risk from the lender’s standpoint.

Many Canadian banks have a preference for lending to their existing customers. This might mean opening a bank account and maintaining a minimum balance as a prerequisite for loan approval. However, this is not a uniform practice across all Canadian banks. For loyal customers, banks often provide perks like reduced interest rates, which can lead to substantial savings over the life of the loan.

When comparing traditional bank loans with those online, it’s important to understand their advantages and limitations. Both types of loans offer upfront funding that you can pay back over time in regular installments.

Traditional banks, however, may offer a more personalized borrowing experience, with physical locations where customers can receive face-to-face service. This human touch can be reassuring for some borrowers, especially those who prefer direct interaction when dealing with financial matters.

Additionally, Canadian banks often incentivize their current customers with perks such as interest rate discounts. This not only fosters customer loyalty but also makes the loan more cost-effective for the borrower.

In contrast, online lenders offer a modern approach to borrowing, excelling at providing nationwide service, often with a more straightforward, quicker approval process.

Online lenders are particularly appealing to borrowers who value convenience and speed. Their ability to often disburse funds the same day you apply for the loan is a significant benefit if you need a loan quickly.

Moreover, the competitive landscape of online lending often leads to more favourable interest rates for personal loans, since online lenders do not need to cover the overhead costs of operating physical branches. The simplicity of prequalifying for a loan online further adds to the appeal of online lenders, allowing borrowers to effortlessly compare rates and terms without leaving their homes.

Pros:

• Customer loyalty benefits: Many Canadian banks acknowledge the loyalty of their customers by offering reduced interest rates. This gesture of appreciation can translate into significant savings over the life of a loan.
• Application flexibility: With banks, the option to apply either in person or online is a significant advantage. This flexibility is particularly appealing to a diverse range of consumers. Borrowers who value personal interaction and guidance can opt for in-person applications at bank branches, while others who prefer convenience and speed can choose the online route.
• Substantial loan amounts: Catering to a wide array of financial needs, some banks are known for offering high loan amounts. These substantial loans come with flexible repayment terms, allowing borrowers to tackle large expenses like home renovations, significant purchases or even debt consolidation.

Cons:

• Prequalification limitations: One of the drawbacks of traditional bank loans is the potential absence of a prequalification process. Unlike many online lenders, not all banks allow for a soft credit check to gauge eligibility, which means borrowers may have to undergo a formal application process. This can be more time-consuming and may impact your credit score slightly.
• Longer processing times: Typically, banks may take more time to review and process loan applications compared to their online counterparts. This could be a significant factor for borrowers who need quick access to funds.
• Potentially higher APRs: To offset the costs associated with maintaining physical branches and other operational expenses, banks might charge slightly higher APRs compared to online lenders. This could mean paying more over the life of the loan, especially if you don’t qualify for customer loyalty discounts.

The process for getting a personal loan from a bank essentially involves five critical steps:

1. Credit assessment: Review your credit report and check your credit score. The credit bureaus, Equifax Canada or TransUnion Canada, can provide you with this information for free once a year. You can also take a look at your credit score by signing up for a free account at Borrowell at Credit Karma. A good credit score not only increases your chances of loan approval but can also secure you a better interest rate. If your score is not up to par, consider steps to improve it, such as reducing your debt-to-income ratio or correcting any inaccuracies in your credit report.

2. Determine your financial needs: Carefully evaluate how much money you need to borrow. It’s crucial to avoid overborrowing, as this can put you in a difficult financial situation. Use online tools like loan calculators to estimate your monthly payments and total interest charges, ensuring you borrow an amount that doesn’t cause you too much financial strain.

3. Explore prequalification options: If your bank offers prequalification, take advantage of this option. Prequalification lets you see potential loan terms without impacting your credit score, allowing you to shop around and compare offers from different banks effectively.

4. Formal application process: Once you select a loan, you will need to fill out a comprehensive application. This will involve providing detailed personal and financial information, and possibly uploading documents to verify your income and other aspects of your financial life. A hard credit inquiry, which is part of this process, may temporarily affect your credit score.

5. Loan disbursement: Upon approval, your bank will deposit the loan amount directly into your bank account. You will, at this point, begin to pay off the loan based on the terms you agreed to, which includes the repayment schedule and interest rate.