Loans
How Personal Loans Work in Canada
What a personal loan is, how lenders set your rate, what it costs and what you need to apply, explained step by step.
What is a personal loan?
A personal loan is a lump sum you borrow and repay in fixed payments, usually monthly, over a set term such as 1 to 5 years.
Each payment covers interest and part of the balance, so the loan is fully paid off at the end of the term. That fixed end date is the main difference from a line of credit or a credit card, where you can keep a balance indefinitely.
People use personal loans for one-off costs: consolidating credit card debt, a car repair, moving costs, a wedding or home repairs. Most personal loans are unsecured, meaning you don’t pledge an asset.
Put it into practiceCompare personal loansHow do lenders decide your rate?
Lenders look at your credit score and history, your income and existing debts, the amount, the term and whether the loan is secured.
Banks rarely publish a personal loan rate. A variable-rate bank loan is priced at prime plus a margin; prime is 4.7% today. Tangerine publishes 8.99% – 15.5% APR for its personal loan. Online lenders that approve weaker credit usually charge 20% to 35%.
In Canada a lender can’t charge more than 35% a year, including fees, on most consumer loans.
What does a personal loan cost?
The cost is the interest plus any mandatory fees. On $10,000 over 5 years, the interest ranges from about $2,170 at 8% to $11,300 at 35%.
| Rate | Monthly payment | Total interest | Total repaid |
|---|---|---|---|
| Top8% | $202.76 | $2,166 | $12,166 |
| 15% | $237.90 | $4,274 | $14,274 |
| 25% | $293.51 | $7,611 | $17,611 |
| 35% | $354.90 | $11,294 | $21,294 |
The table shows the same loan at four rates. A lower rate and a shorter term both cut the total cost; a longer term lowers each payment but you pay more interest overall.
What do you need to apply?
Expect to show government photo ID, proof of income such as recent pay stubs, your address and a bank account for payments.
The lender checks your credit report. Many online lenders and some banks offer a pre-qualification that uses a soft check, which doesn’t affect your score; the formal application usually uses a hard check.
Federally regulated lenders such as banks must give you a disclosure statement showing the amount, rate, term, payment and fees before you sign.
How do I compare offers?
Compare the APR, the total you will repay, any fees and whether you can repay early without a penalty.
APR includes mandatory fees, so it is a fairer comparison than the interest rate alone. Optional loan protection insurance is often added to the payment; you can decline it.
Get quotes from your own bank or credit union first: existing customers often get better rates.
Keep reading
LoansPersonal Loan Rates in CanadaTypical personal loan rates at banks, credit unions and online lenders, why your rate differs from the advertised one, and how to get a lower rate.- LoansPersonal Loan vs Line of CreditHow the two differ in rates, payments and flexibility, and which one suits a one-off cost or ongoing spending.
LoansHow Much Does a Personal Loan Cost?Worked examples showing how the rate and the term change your monthly payment and total interest, plus the fees to watch for.
LoansSecured vs Unsecured LoansWhat collateral means, how it changes the rate, and what you risk if you can’t pay.
Official sources and further reading
Terms vary by product. Confirm the provider’s current terms before acting. This guide does not predict approval, realized value or credit-score changes. How WalletReturn calculates value