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Introduction To Personal Loans

Personal loans are one of the most common types of finance that individuals turn to when there’s an emergency. When you’re in need of funds to make ends meet, where would you turn to?

Personal Loans

Personal loans are God-sent when you are in a tight spot. When you need to pay for something or buy an item but do not have enough money to pay for it immediately, it can be distressing.

Personal loans can be used to cover educational expenses, medical care, a recurring bill etc. Personal loans can also be used for any other general purpose that the individual wants to use the loan for.

Once you can prove that you have a regular source of income, you can get the loan. It all depends on the criteria that the lending agency will choose.
With personal loans, you’re usually supposed to repay between 24 to 60 months. The interest on the loan to be paid depends on the period you have to repay the loan.

The number of loans granted can range from as low as $600 to $100,000.

Who qualifies for a personal loan

Most of the time, mainstream lenders use credit score to know who qualifies or who doesn’t for their personal loans. The credit score is a figure that is used to determine the creditworthiness of an individual. It gives lenders a fair idea whether you will be able to repay the loan given to you.

When your credit score is low, lenders may be wary of granting you a loan. The opposite is true when your credit score is high.

Someone who keeps a good credit history has a better credit rating. It shows that the person pays their loans and handles their debts on time and is likely to get a personal loan when they apply.

In the event that you have bad credit, some lenders will still be willing to grant you personal loans especially credit unions and friends, or family.

Characteristics of personal loans

1. They are predominantly unsecured

You can get them without using an asset as collateral. Personal loans do not require that you place collateral before you get the loan. When there’s a default, borrowers cannot take your asset and this makes personal loans sometimes difficult to get. Though the lender may not be able to take an asset, it may take other steps to recoup its money – through reporting late payments to the credit bureau.

2. Personal loans are in fixed amounts.

You can apply for personal loans from $1,000 to $50,000. The factors considered before a loan will be granted to you include the other debts you have, your credit rating and your income. When any of these factors are high, you can borrow as much as you want. Some lending institutions though, have a limit or a ceiling up to which you can borrow.

In such cases, it doesn’t matter if you qualify, you just would not get a loan beyond a certain limit. This prevents you from overspending. Personal loans are a one-time loan and it does not revolve like the credit card. Neither do you get more credit when you pay off the loan balance

3. They have fixed interest rates

The interest rates on the life of the personal loan don’t usually change. If your credit score is high, you have a lower interest rate. Either you pay within 12, 24 or up to 60 months. When you have a longer time to repay your loan, you have a lower monthly sum to pay but the interest is high.

The shorter the repayment period, the lower your interest rate and the higher the monthly sums to be paid.

Some personal loans have variable rates. When this happens the payments that you have to make towards the loan fluctuates as the interest rate changes. This may not allow the borrower to budget towards loan payments.

4. Personal loans affect credit scores

When you consistently make payments on your loan each time, it affects your credit score positively. Most lenders forward your credit payment records to credit bureaus.

If you fall back in your payments that will also be recorded and it can be a negative to credit scores. Timely payments are necessary to maintain a good credit score.

Types of personal loans

You can opt for 2 main types of personal loans. Either the secured personal loans or unsecured personal loans. The main consideration is whether you do not mind losing an asset in some cases.

• Secured personal loans

A secured personal loan is a loan that is granted to you after you have put an asset as collateral on it. The nature of secured loans is such that without the collateral, you will not be able to get the loan. With secured personal loans, because the risk is low, the interest rate to be paid on loans are not high.

In some cases, if your collateral is good you can still get the loan even if you don’t have a job.
The collateral is provided so that in case there is a default on the loan, the lender can use it to defray debts. When you pay off the loan, a part goes to the interest and another part to paying the principal amount.

Types of secured personal loans

• Home Equity Line of Credit
• Mortgage

Home Equity Line of Credit (HELOC)

With HELOC, your home is used as a security to borrow an amount of money. You are given a time frame to draw money usually up to 10 years. You have access to the credit as long as the draw period is not over.

To access Home equity Line of Credit, the amount you owe on your home shouldn’t be more than the value of your home. You then get monthly bills that have minimum payments you are to make.

The access to this line of credit is by specially issued checks or credit card-like cards. You are required to keep a minimum outstanding balance. There are minimum amounts that you are allowed to withdraw.

HELOC Payments

The payments can vary or be fixed. This will depend on the terms of the agreement. The more principal payments you make, the more you reduce the HELOC debt.

There are two types of home equity lines of credit. One has an interest-only draw period, the second is when you have a draw period where you pay interest and principal. The second option makes you pay the loan faster.

When you are able to pay the principal, you can get another chance to borrow again. After the line of credit expires, the repayment period begins which can be up to 20 years. You would have to pay the outstanding balance and then the interest.

Your credit line at this point may not be renewed.

This type of personal loan has a variable interest rate and is tied to a benchmark interest rate like “The Wall Street Journal Prime Rate”. If the prime rate fluctuates, your payment towards the HELOC will also vary. Some lenders may allow you to change the adjustable rate to a fixed rate.


Mortgages are types of personal loans that you go in for mainly for real estate purchase. It has two components: the principal and the interest. The principal is the loan amount and the interest is usually an additional amount which is gotten by calculating a percentage of the principal. The lenders charge the interest as a fee for borrowing the money.

Mortgages require collateral and individuals can use their homes for example. Companies may choose other commercial assets as collateral. Mortgages as a type of personal loan can have fixed rates or adjustable rates of repayment

With a Fixed-rate mortgage, the interest is set for the life of the loan, from 10 to about thirty 30 years. There is an option if you want to pay off the loan on your home faster. With that, you have a higher monthly amount and you have a shorter term to pay back the loan.

On the part of adjustable- rate mortgages, you experience a fixed rate initially for about 3 to 10 years. After that, the rate fluctuates with prevailing market conditions.

You will have to be certain if you will be able to handle the monthly mortgage payments as well as any further increases. You wouldn’t want any payments to go against your credit.

Unsecured personal loans

Unsecured personal loans are well known for the fact that they do not require collateral before the loan is granted. You will, however, be paying a higher interest rate due to the risk associated with this kind of loan.

When you default on the loan, it is the lender that suffers because there is no asset of yours that he can hold on to for repaying the debt.

The high-interest rate is, therefore, compensation for that risk.

Types of unsecured personal loans

• Signature loans
• Credit cards
• Student loans
• Peer-to-peer loans

Signature loans

This type of personal loan is gotten by your signature or a promise to pay. It’s also known as a “good faith” or “character loan”. You qualify for signature loans if your credit history is good and your income is enough to show that the loan can be repaid.

You can borrow from $500 to $50,000 but sometimes the amount is smaller because there is no collateral on the loan. Banks and credit unions give out these loans and you’re not restricted on the use of the money.

You can use signature loans for home improvements, emergency expenses, debt consolidation, and other major purchases.

After you borrow the money, there are fixed monthly payments to be made until the loans are paid off.

Signature loans can have a fixed interest rate and the rates vary depending on credit scores and income.

Personal Loans Infographic

Credit Cards

Credit cards as a type of personal loan are the easiest and most common means of finance for individuals all over the world. Cards are given to cardholders to enable them to pay for goods and services.

The cardholder then promises to the issuer of the card to pay back the amount used plus other agreed charges that have been set.

With credit cards, you don’t get a lump sum but you draw the amount you need from the card as and when it’s needed. The interest rates are high on credit cards.

Even though you may get a teaser rate to borrow at 0%, it may not last for too long.

Credit cards combine payment and extension of credit. When you pay off the money you have used up, you qualify to get another line of credit (revolving credit).

Credit cards allow the continuing balance of debt at an interest rate.

Student loans

Student loans are personal loans that are easy to get as there are not a lot of restrictions on payments. This type of loan has grace periods and interest subsidies. Once you’re a student you qualify for the loan. You do not need to have good credit to qualify. These loans are available by visiting the financial aid office of the school. You pay back the loan in fixed installments and at competitive interest rates. Once you’re in school, the payment can be put off till later.

Peer-to-peer loans

This allows you to borrow informally from individuals. There are different websites that have been set up for such purposes.

Borrowers are then matched with investors and then the terms of repayment are then negotiated. Borrowers pay lower interest rates.

Both individuals and companies can apply to peer-to-peer lending sites. After application, you can receive your loan within 2 – 14 days.

When personal loans are better than credit cards

In some situations, taking out personal loans are a better option than credit cards. These are some of the reasons.

• When you need longer years to repay a loan, you need a fixed rate, or you prefer monthly payments.

The variable interest rates on credit cards, for example, can make payments daunting.

Personal loans have flexible payments that allow you enough time to plan how to repay the loan. With fixed interest rates, borrowers can decide how they will repay the loan effectively. Credit cards, on the other hand, have variable interest rates and this can affect the payments that you have to make monthly.

• When you want to consolidate debt at a low interest rate and you need several years to pay it off.

Consolidating debts reduce the interest rates you have to pay on loans you may have. Paying it off can be a headache but personal loans are a better option to consolidate debt. With personal loans, you have fixed interest rates than credit cards.

Credit cards can have interest rates as low as 0% interest rates on purchases but these promotional rates do not last long.

Once it’s over, the interests rates can go back to an all-time high and that would not be beneficial to the borrower. Thus if you want to pay off your debts at a lower interest rate, personal loans will be the best option.

• When you need to repay money borrowed

In the event that you need to repay money borrowed, you cannot use a credit card, Unless you’re going in for a cash advance which is very expensive to use anyway. Taking a personal loan to pay for such debts are better options than using a credit card.

Requirements for getting a personal loan

The information needed to get you a personal loan varies. It will largely also depend on the type of loan that you are going in for. Secured loans will have more details required and unsecured loans may require lesser documentation. Here are some of the things you will need in order to get a personal loan.

– A minimum of 18 years old at the time of application

– Proof of identification. This can be a government issued form of identification such as social security card, driver’s license, passport,

– Address and other bio information such as date of birth. It gives the lender a fair idea about who they’re dealing with.

– Employment history. So as to know how much you are eligible for and how much you can repay.

– Pay stub. This serves as evidence to lenders that you have a viable income source or whether you’re getting some funds from alimony.

– Checking account. This is needed because it’s the account that the loan will be paid into and repayment also scheduled.

Benefits of personal loans

• Flexibility

Generally, personal loans have a multipurpose use. It can be used for travel, medical, and other purchases that the individual chooses. It differs from home loans and auto loans and other types of loans which are taken for specific purposes.

With some personal loans, you can get your loan within 24hrs upon application.

Personal loans do not require lengthy documentation and are less stringent when it comes to approval.

Thus personal loans are a great aid if you need quick cash to solve an emergency. The normal payment period of such loans ranges from 2 – 10 years.

• You get a clear timeline for repaying your loans

Due to the fact that personal loans have a set specific time that you have to repay your loan, you are provided with a clearer period of when you will end or clear the debt. This helps you to structure your repayment conveniently. You also have the option of paying more than the minimum monthly amount scheduled. This is just about the best arrangement you can get to pay back your loan.

• Improvement of credit rating.

Your credit score and overall credit rating can improve if you get the right personal loan to meet your needs. When you overdraw your account and miss out on credit card payments, it can negatively affect your credit.

Instead of waiting for all the debts to pile up on you, a personal loan can help you out of debt situations. This is where personal loans fit in as they can be taken to help pay for the debt that has been incurred.

The more you pay off your debt, the more your credit score increases. This will give you more opportunities in the future when you are looking for funds from lenders.

Downsides of personal loans

• High-interest rates

Sometimes high-interest rates characterize personal loans that are taken. This is due to the fact that some personal loans do not require collaterals and hence the risk on them is high. This can make personal loans a bit expensive to subscribe to.

• Your credit history is needed

The credit history of applicants is sometimes checked if you’re going in for Home Equity Lines of Credit and mortgages for example. Even though this is sometimes viewed as a bottleneck in the individuals’ bid to get a loan, credit history enables the borrower to know your repayment behaviour.

If you have a poor credit history, you may not be accepted for a loan because the lenders are likely to think you will highly default on repayment.

In some cases, its advised that you apply for loans in banks where you have an account. This is because your details will already be with them. They can vouch for your credit history and there will be no need for a laborious verification of your details.

• Part payments are not accepted

 Usually, personal loans are given in lump sums but their repayments are in installments over a period of time. You are not allowed to make part payments when repaying. You will have to make full payments for the period of repaying.

The Equated Monthly Instalment (EMI) agreed upon with the lender remains the same throughout the life of the loan. This agreement varies from one lender to the other.

In the event that your credit score is low, you may still get a loan but that will mean stricter repayment terms. Your principal amounts will be low and interest rates high.


To sum up, personal loans are a great tool in the hands of those who have financial needs to settle. There are many benefits to personal loans. To get a personal loan, you would first have to assess exactly how much you will need.To get personal loans in canada apply at

Further, you’ll also need to know whether you’re going in for a secured personal loan or an unsecured personal loan as this will determine the interest rate and whether you’ll need a  collateral to get the loan.

You would also need to know your current credit score and debt to income ratio so as to know which loan you will qualify for. The debt to income ratio is the figure you get after dividing your monthly debts from your gross income. The lower it is, the better.

Whichever personal loans path that you choose, the main thing will be the ability to stick to the monthly payments agreed upon.

Disclaimer: All loans offered through this website are subject to credit and underwriting approval. is a lead referral company, not a lender. AfterLoans only works with financial service providers that adhere to Canadian laws and regulations.You can borrow up to $20000. Loans amortization is between 6-36 months. APRs range from 19.99% to 55%. The actual APR charged will depend on the lender’s assessment of your credit profile. For example, on a $1000 loan borrowed for 12 months at 29.9%, the monthly payment will be $97.24; with a total repayment, including interest, of $1166.88 There is also lender’s optional loan protection policy. In the event of a missed payment an insufficient funds fee of around 45$ may be charged (dependent on the lender). If you default on your loan payment plan the lender may terminate the plan and the remaining balance will become payable immediately. Our lenders employ fair debt collection practices, but will pursue the payment of Outstanding debts to the full extent that Canadian law allows.