Must read: Best installment loans
Installment loans: What are they and how do they work?
Installment loans provide fast access to funds and have lenient eligibility criteria, but watch out for high rates and fees.
If you’re looking for an installment loan, there are plenty of options available in Canada for good and bad credit. Plus, you can get one as soon as today. Interest rates, loan amounts, loan terms, eligibility criteria and other factors vary with installment loans, so carefully compare providers to find the best loan option for you.
In this guide, we’ll explore how installment loans work, including pros and cons and how you can use funds.
What are installment loans?
Installment loans are unsecured personal loans offered by alternative lenders. Unlike personal loans from traditional lenders like banks and credit unions, installment loans have more lenient eligibility criteria. This means you may still be able to qualify for a loan even if you have bad credit.
Loan amounts and terms vary depending on the lender. You can typically borrow amounts ranging from $500 to $10,000, but some lenders let you borrow up to $25,000 or even $50,000. You can repay your loan over a term ranging from 3 - 60 months.
How do installment loans work?
When you take out an installment loan, you borrow a lump sum of money that is deposited into your bank account. Because the loan is unsecured, you don’t need to provide any assets as collateral.
You then pay back the loan amount plus interest in installments, making regular payments on a monthly, bi-weekly or weekly basis. Interest rates are usually fixed, which means your payment amount will be the same each time. However, installment loans typically have lenient eligibility requirements and subsequently come with higher rates than traditional personal loans.
Some lenders will also charge administration and brokerage fees to set up your loan. If you miss a payment, NSF and late payment fees might apply.
Finally, you can repay your loan early if your budget allows. Many alternative lenders let you pay off your loan early without penalty, but be sure to check your contract first.
Where do I get an installment loan?
Installment loans are offered by alternative lenders across Canada. You can apply for a loan online, while many lenders will also allow you to verify your identity and income online as well. If you’re approved, funds will be sent to your bank account by direct deposit or e-Transfer.
However, some installment loan lenders also offer storefront locations where you can apply in person if you prefer.
Compare installment loans
1 - 7 of 7
Finder Score for personal loans
To make comparing even easier, we came up with the Finder Score. Interest rates, fees and features across 110+ personal loans are all weighted and scaled to produce a score out of 10. The higher the score the better the loan—simple.
What are installment loans used for?
You can use an installment loan for any legitimate purpose. There are typically no restrictions on how you can use your funds. You might want to take out an installment loan to pay for:
- Car repairs
- Home repairs
- Medical bills
- Other unexpected expenses
Installment loans often come with high interest rates and should only be used when you need an emergency loan. If you need money to pay for a non-essential purchase such as a vacation, consider opening a high interest savings account instead.
What to watch out for
There are a few drawbacks to be aware of before applying for an installment loan.
- High interest rates. The APR on an installment loan can be as high as 47%, making it an expensive way to borrow money. Use a personal loan payment calculator to figure out the total cost of repaying your loan.
- Fees. Some lenders charge hundreds of dollars in brokerage or admin fees to set up installment loans with terms of less than six months. Check the fine print for details of any late payment or NSF fees that apply if you miss a payment.
- Scams. While there are many legitimate alternative lenders in Canada, be wary of scammers. Keep an eye out for any warning signs of a personal loan scam, such as charging an upfront fee, promising guaranteed approval or using high-pressure sales tactics. Research the lender thoroughly to ensure it’s legitimate. Learn more about guaranteed approval loans.
- Unnecessary borrowing. Just because you qualify for a loan, it doesn’t necessarily mean you should get one. Make sure you only use an installment loan to cover essential expenses.
How to calculate the cost of installment loans
The total cost of your installment loan will depend on:
- How much you borrow
- The loan term
- The interest rate
- Loan fees
When comparing loans, check the annual percentage rate (APR), which includes the interest rate and the loan setup/origination fee, to get a better idea of how much each loan will cost. Note that fees like NSF charges and prepayment penalties are not included in the APR.
To give you an idea of how much installment loans cost, let’s look at two examples.
Example 1: $3,000 installment loan
Lena’s car has broken down, and she needs $3,000 to pay for the repairs. She doesn’t have any money set aside, so she applies for an installment loan from an online lender. She gets a loan with a 19% interest rate and a 12-month term. There are no loan setup fees. Lena opts for a monthly repayment schedule.
Altogether, it’ll cost a total of $3,317.64 to pay off the loan.
| Loan amount | $3,000 |
| Loan term | 12 months |
| Interest rate | 19% |
| Fees | $0 |
| APR | 19% |
| Monthly payment | $276.47 |
| Total cost to repay | $3,317.64 |
Example 2: Short-term $900 installment loan
Jim’s dog eats a sock, suffers a gastrointestinal blockade and needs emergency surgery. Jim has $1,500 in savings to pay for the surgery, but he needs an extra $900 to cover the veterinary bill in full.
He takes out a short-term installment loan that must be repaid in five months. However, the lender also charges a $225 brokerage fee. Combined with the short repayment term, this means Jim’s installment loan has a very high APR of 147%.
| Loan amount | $900 |
| Loan term | 5 months |
| Interest rate | 19% |
| Fees | $225 |
| APR | 147.575% |
| Monthly payment | $188.64 |
| Total cost to repay | $1,168.20 |
Related: Short-term loans in Canada
How to apply online
To apply for an account you’ll need to:
- Be a Canadian citizen or permanent resident
- Be the age of majority in your province or territory
- Have a valid Canadian bank account
Income and employment requirements also apply. Depending on the lender, you might need to meet a minimum credit score requirement.
Here’s how to apply for an installment loan online:
- Enter your name, date of birth and Social Insurance Number (SIN).
- Provide your phone number, email and residential address.
- Enter details of your income and employment.
- Specify how much you want to borrow.
- Provide proof of ID.
- Provide proof of income using online bank verification, which allows the lender to access electronic read-only copies of your bank statements.
- Submit your application.
How to pay off your installment loan
Your loan agreement lays out your installment loan repayment schedule. Monthly payments are most common, but weekly and bi-weekly payments are also available. Manage your budget carefully to make sure you can regularly make on-time payments.
If you come into some extra money, paying off your installment loan early will save you money on interest. However, check your loan contract to find out whether the lender will charge a prepayment penalty.
If you’re ever experiencing financial difficulties, don’t just ignore your regular payments—this will have a negative impact on your credit score and your debt could be sent to collections. Contact the lender before you miss a payment to see if it’s possible to negotiate a new payment plan to help you get back on track.
Bottom line
Installment loans have lenient eligibility criteria and offer fast access to funds. But they also come with high interest rates and fees, so they should only ever be used in financial emergencies. Compare installment loans from a range of lenders to find the best value.
Frequently asked questions
More resources on Finder
More guides on Finder
-
e-Transfer installment loans in Canada 24/7
Apply online for up to $15,000 and get paid by e-Transfer when approved – usually within 24 hours.
-
Compare installment loans in Manitoba
Compare interest rates, loan amounts and eligibility requirements of installment loans in Manitoba. Get approval and funding as soon as the same day.
-
15 best installment loans in Canada
We examined the marketplace to find the best installment loans in Canada.
-
Installment loans in Nova Scotia
Compare installment loans in Nova Scotia to find the right option for you.
-
Best installment loans in Alberta
Learn about installment loans and compare lenders in Alberta to find the right loan for your financial circumstances.
-
Best installment loans in BC
Compare some of the best installment loans in BC to find the right loan for you.
-
Best installment loans in Ontario for bad & good credit
Find out how to take out an installment loan in Ontario and compare lenders today.