Debt Consolidation Loans Canada

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Last updated on July 29, 2019

The Definitive Guide to Debt Consolidation Loans in Canada

If you have found yourself with multiple debts, from multiple Canadian lenders, debt consolidation is something you have probably begun to consider. The topic of debt consolidation in Canada can be a confusing one. Trying to find the right type of loan or option has proven to be quite the daunting task for many Canadians. If you are having difficulties navigating the complexities of debt consolidation, you have come to the right place.

LoanConnect allows you to search multiple loans and other consolidation options from a variety of lenders and companies across Canada. We are also fully dedicated to educating and supporting you throughout your debt consolidation journey and to help you manage your consumer debts. If you are interested in learning more about debt consolidation loans and the types of loans and options available to you, apply now. It's free to apply and won't affect your credit score to get pre-approved. If you are in need of debt consolidation advice, we recommend you visit our Frequently Asked Questions page.

Understanding the Basics of Debt Consolidation Loans

What is a Debt Consolidation Loan and How Does It Work?

When Should You Consider a Debt Consolidation Loan?

The Advantages of Consolidating

What to Expect During The Application Process

How Long Does it Take to Get Approved For a Debt Consolidation Loan in Canada?

How do I Get my Money After I Have Been Approved For a Debt Consolidation Loan?

Debt Consolidation Loans and Your Credit Score

The Bankruptcy Score

Evaluating Lenders and Consolidation Loan Options

Unsecured Vs. Secured Debt Consolidation Loans

Debt Consolidation Loans From Canada's Banks

Debt Consolidation Loans From Credit Unions

Debt Consolidation Loans From Private Lenders

How to Know if You Are Working With a Trusted Private Lender

Debt Consolidation Loans and Your Credit Score

Alternatives to Debt Consolidation Loans

Are There Other Options Than a Debt Consolidation Loan?

Consolidating by Using Your Mortgage

Credit Card Consolidation

The Basics of Credit Card Consolidation

Other Methods to Consolidate Credit Card Debt

What to do When You Are Denied a Loan to Consolidate Your Credit Cards

Should You Get Another Credit Card After Taking Out a Consolidation Loan?

Managing Credit Limits After a Consolidation Loan

Credit Repair, Debt Relief and Consolidating Through Debt Management

Debt Consolidation Loans For Bad Credit

When to Consider a Debt Management Program

Understanding Debt Consolidation Loan Contracts and Loan Details

The Disclosure Statement

Prepayment Privileges and Penalties

Laws and Governing Bodies

Laws and Regulations You Should be Aware of

The Disclosure Statement

Filing a Complaint


What to do When a Lender is Not Regulated by The FCAC

Frequently Asked Questions About Getting a Debt Consolidation Loan

Where can I get a consolidation loan?

How much do debt consolidation loans cost?

What are the disadvantages of a debt consolidation loan?

How long does a debt consolidation loan take to pay off?

Can I get a debt consolidation loan if I have bad credit?

Will a debt consolidation loan impact my credit?

What is the average interest rate for a debt consolidation loan?

Where can I get debt consolidation advice in Canada?

How much debt do I have to have to consolidate?

What is a Debt Consolidation Loan and How Does it Work?

Unsecured debt consolidation loans come in a variety of shapes and sizes, that can entail different interest rates, amounts, payment schedules and stipulations. However, each consolidation loan has one aim: to allow you to pay off all outstanding debt and be left with a single payment to the lender of your consolidation loan. After you have been approved, like any other loan, you will make monthly payments and be charged an interest rate until you have paid off the loan.

The typical consolidation loan is over a term of 2-5 years and has an interest rate of 5-25%. However, different factors can influence the term and rate to fall outside of these ranges. As in all lending situations, the difference between a good and a bad credit score can highly affect the rates offered for consolidation loans. Should the interest rate be too high, the cost of consolidating can actually outweigh the benefit. It is not uncommon to see interest rates in excess of 40% for poor credit candidates.

In the right scenario a consolidation loan can save you from paying extra interest, avoid dealing with multiple payments, create a more flexible payment schedule, and help you to get out of debt faster. In order to receive a debt consolidation loan, you will have to apply for one with a Bank, Credit Union, Private Lender, like LoanConnect or other Financial Institutions.

When Should You Consider a Consolidation Loan?

There are two main benefits to consolidating your credit:

  1. Reducing the total amount of interest you pay.
  2. Making your payments more manageable.

By taking multiple loans and compiling them into one, your minimum monthly payments will be reduced, allowing you to pay down the principal on your loans faster and reduce your interest costs. Having a lower monthly payment will allow you to have a more flexible budget. Consolidation loans are a life raft for people struggling to keep their heads above water.

So ultimately, what are the signs that you should consider a consolidation loan? If you find yourself struggling to juggle multiple debts, or feeling like you're only paying interest without reducing your principal, it's time for you to look at a consolidation loan. Debt can weigh on you, and become very stressful, but when you manage debt properly and know the tools available to you, it can make all the difference. Debt consolidation is one of the many tools in the world of finance that can ease your mind and make your money more manageable.

The Advantages of Consolidating Debt

Consolidating your debt has many advantages, here a few of the more important ones:

  • You will only have to focus on paying back a single lender
  • You may be able to get a better interest rate with more of your debt payment going toward the principle, allowing you to get out of debt sooner
  • You are less likely to be late on payments because you are only focused on paying back one lender
  • Your payments are more predictable

What to Expect During the Application Process

When you apply for a debt consolidation loan in Canada, you will typically have to fill out a fairly indepth loan application. You will be asked to provide information about your income, monthly expenses, current debt payments and whether or not you have previously filed for bankruptcy. You will also be asked to provide your credit score which is commonly cross referenced for accuracy. Most lenders, if not all, require a credit check, especially if you have not taken out a loan with them in the past. The higher your credit score, the better.

How Long Does it Take to Get Approved for a Consolidation Loan in Canada?

The quick answer to this question is that there is no standard. For example, there is a difference between pre-approval and the actual approval of a loan application. When you apply for a loan with LoanConnect, you can get pre-approved in as little as 60 seconds. The pre-approval process is completed with the assumtion that the information you have provided is correct, so the next step for most lenders is to verify what you have provided is indeed accurate. This usually involves obtaining a credit report. How long the entire process takes tends to vary, the majority of lenders will process the loan within 5 to 10 business days. However, when applying for a loan with LoanConnect you can receive funds in as little as 24 hours.

How do I get my Money After I Have Been Approved For A Debt Consolidation Loan?

So you've decided on a debt consolidation loan, you've gone through the application process, and you're ready to pay off your debt; what's next? From this point on, there are multiple ways the money can be distributed to the outstanding debts your loan will close. One of these methods is a deposit to an account of your choosing, from which you would pay and close out your outstanding debts. When closing these accounts in this manner, it is important to get proof of the accounts being closed.

In other cases the lender may transfer the funds directly to the accounts being closed and close them for you. Regardless of the method, many consolidation loans are contingent upon closing out the loans the funds are intended for, and whichever institution you use will most likely want proof that the accounts have been closed. They basically just want to know that the money they've given you is being used for the intended purpose and you're not stacking debt on top of more debt.

What Types of Debt Can I Consolidate With a Consolidation Loan?

The types of debts you can consolidate with a consolidation loan are virtually endless, however, there are some more common among Canadians. Perhaps the most common type of consolidation is credit card debt. Given the nature of credit cards, they have substantially higher levels of interest than traditional low interest loans. For many Canadians, if they have worked themselves into high levels of debt, a debt consolidation loan allows them to have the same principal amount at the end of the day, but at a significantly lower interest rate. Other forms of debt commonly consolidated are: loans from private lenders, healthcare loans and even home renovation loans.

Unsecured Vs. Secured Debt Consolidation Loans

If you have been navigating the options of debt consolidation loans, you have probably come across the terms of "secured" and "unsecured" loans. The primary difference between the two is that a secured loan is borrowed against your assets which act as collateral, and an unsecured loan is not secured by any form of personal asset.

Though secured debt consolidation loans exist, the majority of debt consolidation loans come in the form of unsecured lending. While unsecured loans are usually approved faster, they can be more difficult to obtain because the loan is not secured against any form of asset. Unsecured loans also typically carry higher levels of interest to balance the lender's risk.

Consolidation Loans From Canada's Banks

There are some advantages and disadvantages of using a bank vs. another financial institution. Due to the large scale of banks, they tend to be more convenient for many consumers. Branches scattered throughout Canada, and a healthy online presence, make these institutions easily accessible to anyone.

Although having easy access is great, there are drawbacks to a large financial institution as well. Having such a large and established infrastructure can make customizing the products and accounts a harder task. Making exceptions to corporate policy and finding the best fit is sometimes not possible. A smaller, more niche lender or credit union may be able to provide a more custom experience to better fit your needs. Within large financial institutions, there is only so much an employee can do, or a certain distance they can stray from the norm to accommodate you.

Consolidation Loans From Credit Unions

Credit Unions are growing ever more popular within the financial world due to their ability to market on a more effective scale to their local communities, while offering lower fees and interest rates. They are essentially "banking" institutions that operate as non-profit organizations. While a bank is focused on the bottom dollar, credit unions pay back the community with any profit, whether it be through local charities or giving back to its customers or "members" in the form of dividends. They may also use the funds to enhance the overall experience for its members by putting that money into the expansion and betterment of the credit union itself.

Typically speaking, whether for day-to-day banking or credit products, credit unions will generally be the cheaper alternative and will also offer a similar personalized loan. In addition, the mobile and internet presence can be better than the big branded banks we so often turn to.

Consolidation Loans From Private Lenders

Private lenders are people or businesses, not financial institutions, that lend money out for the sake of profit. Whether it be mortgages, cash advances or consolidation, the process is still the same.

In terms of consolidation loans, many private lenders act as a last resort. Due to the less stringent approval criteria and the speed at which they deliver a loan, many consumers with low credit scores turn to them. Typically, private lenders are a good option if you've found yourself in a jam and need cash fast. This is not saying they can't provide competitive rates at times, and they definitely can be the right choice. If you're willing to do some rate shopping and your credit isn't the best, odds are private lending can help you. However, it is important to consider other alternatives before taking a consolidation loan that may not be beneficial to you.

How to Know If You Are Working With a Trusted and Reputable Private Lender

If you are looking for a consolidation loan that exists outside the realm of traditional banks and credit unions, private lenders offer a good alternative. Although private lenders can often offer more custom solutions to fit your needs, there are a few things you should do to ensure you are working with a respected and reputable lender:

  • Check online reviews in order to gauge other people's experience with the lender. If many people have had a positive experience in the past, it's a strong signal that you will too.
  • Visit the lender's website. Is it professional? Does the company subscribe to transparency as a corporate philosophy? If so, this can be considered a positive sign as well.
  • Call them! Have a conversation with their representatives. Are they genuinely helpful? Or do they practice aggressive sales tactics? If the latter is the case, be wary. Stand firm, and don't be afraid to say 'no' to their pressure tactics.
  • See if you have a friend or family member who has done business with them in the past. Friends and family will give you an objective opinion and look out for your best interests.
  • Check to see if the lender is registered and verified with the Better Business Bureau, this is a good way to screen out fraudulent lenders.

Are There Other Options Than a Consolidation Loan?

When you assess your financial situation and realize you need to make a change, it's best to know your options for debt consolidation in Canada. At some point a consolidation loan may not be the best option for you, maybe you don't qualify for a loan, or maybe your situation is manageable without one. The important thing is to properly assess your situation. You may have multiple lines of credit that have different interest rates each person has a unique credit and financial situation.

For example, say you have a $10,000 revolving line of credit with a 10% interest rate, and you also have a credit card that has an outstanding balance of $7,000 dollars at a 20% interest rate. You could easily save yourself money by paying off your credit card through the line of credit. Paying debt with debt is something that can be scary at times and can seem like it's a vicious cycle, but when implemented correctly, it can be extremely beneficial. By paying that credit card with your line of credit, you actually will save money due to the lower interest rate, and be able to make lower minimum payments while getting out of debt faster.

The same can be said for two credit cards. If you have one at a higher rate and one at a lower rate, focus on the card with a higher rate, pay it off as fast as possible and stop charging the card with any purchases. This strategy alone can save you money, time, and put you in a better financial situation. As you can see, the little details play such a crucial role in the progression and development of our financial well-being. Pay attention to the little things, look at the interest rates, and make sure you have the ability to pay off extra on your lines of credit. The number one rule of finance is staying informed on your financial situation; keep an eye on it, ask questions, and know your options.

Consolidating by Using Your Mortgage

Consolidating your debt by using your mortgage usually comes in two different forms: consolidating through refinancing and taking out a secured line of credit or a loan against your home equity. Both strategies are sound if the interest you pay will be substantially lower than the interest rates you currently have. However, tread carefully. Mortgages often act as a nest egg for many Canadians, and using it to consolidate debt could impact your overall net worth down the road.

Debt Consolidation Loan Approval and Your Credit Score

As you have probably already guessed, and as we have already mentioned, your credit score will impact whether or not you get approved and what type of interest you will pay. But to what extent? In order to understand how your credit score impacts your loan and the types of interest you will pay, let's break down the different credit score ranges and what type of consolidation loans you can expect within each range:

Bad Credit (550 and Under)

In this range, you will normally not be considered for a consolidation loan. If you have found yourself with bad credit and a score below 550, it may be time to start looking at alternatives. It will be paramount for you to begin taking steps to improve your credit score and move forward. Working with a debt management company will enable you to begin rebuilding your credit over the course of time, and position you for financial success in the future.

Below Average (550 to 649)

If you have fallen into this credit range you will still have difficulties getting approved for debt consolidation loans, however, you may get approved for some. Usually, private lenders will loan out to individuals who have a credit score in this range, but you should expect to pay significantly higher interest rates than normal. If your credit falls within this range, a debt management program is a superior alternative to a loan.

Fair (650 to 699)

With the average for most North Americans falling being between 650 to 699, this tends to be the "average" range for most Canadians as well. Credit scores in this range usually do not have any trouble getting approved for a loan. However, the interest rates you qualify for may not be low enough to justify taking out a consolidation loan. If you fall within this credit range, you may want to consider a debt management program instead to consolidate your credit into a single payment plan with possible lower interest rates.

Good (700 to 749)

In this range, you likely do not have a history of late payments, and you make more than the minimum monthly payments on any outstanding loans you currently have. You will qualify for most debt consolidation loans and may receive loans with lower interest rates than the interest rates you currently have.

Excellent (750 and Above)

If you fall into this range, you have a virtually perfect credit score and will qualify for most, if not all available debt consolidation options. Individuals with a credit score in this range can expect to pay an interest rate of around 5-15% and in some cases, receive an interest rate below 5%. If your credit score falls within this range, a debt consolidation loan from a major financial institution may be a good option.

The Bankruptcy Score

Little known to many Canadians, lenders also examine a score called the Bankruptcy Score. This score is not made available to consumers but is used to help lenders understand the possibility of you going bankrupt and defaulting on your outstanding debt. Though not as important as the credit score, it is used by most lenders across Canada. Most bankruptcy scores range from 1-600, and unlike the credit score, the lower it is, the better. If you have a low bankruptcy score and a high credit score, you will normally receive the best loan options and interest rates the market has to offer. The Bankruptcy Score is not transparent to consumers – it is part of the credit score data that credit bureaus share only with lenders. Even if you order a full credit report from a credit bureau like Equifax, you won't see your Bankruptcy Score.

Debt Consolidation Loans For Bad Credit

Getting a consolidation loan with bad credit can be difficult, however, there are still options available to you. One option is to take out a secured loan, though you should be cautious when doing so. If you are unable to make payments, lenders will have the legal right to possess the assets you have used as collateral. If you opt for this route, you will typically have to have a credit score of 550 or above in order to qualify. If you have a credit score below 550, you will have to take steps to rebuild your credit. It is important to note, that if you take out a secured loan with below-average credit, you will still be subjected to substantially higher interest rates, which is not an advisable route to take.

When to Consider a Debt Management Program or Consolidation Program

As you may have already guessed, if you do not have a strong credit score and the resources to properly pay a potential loan, a debt consolidation loan is not a viable option for you. However, this is not to say that you will be unable to consolidate your debt. A debt management program might be the right course of action to take, and will allow you to consolidate your debt in a different fashion, and will help you in dealing with creditors. Many debt management companies allow you to work with a credit counsellor as well to help you better manage your debt payments.

Debt management companies will work with your creditors, oftentimes allowing you to reduce interest rates. Your debt will become consolidated in the sense that you will pay the debt management company directly, who will then, in turn, pay your creditors. Though debt management and credit counselling services can impact your credit score in the short-term, the ability to eventually pay off your debts will strengthen your credit score in the long-term.

The Basics of Consolidating Credit Cards

Consolidating your credit cards with a consolidation loan may only be appropriate under certain circumstances. Though there are a variety of options to consider, there are two methods primarily used by Canadians to consolidate their credit card debt: consolidating your credit cards with a consolidation loan, or finding a credit card option with better interest rates and using it to eliminate your other credit card debt. Both options, though different, have a similar aim, which is to have one monthly payment to one lender, typically at a better interest rate.

The first option, which is the most common, begins by identifying a financial institution that offers credit card consolidation loans and services. It is important to do your research and ensure that you have weighed your options accordingly. Many Canadians will often go directly to a bank without even evaluating other options. Credit Unions often offer comparable interest rates with less stringent loan approval criteria. While loans through private lenders will be easier to qualify for, they will more than likely come at the cost of a higher interest rate.

When applying for a debt consolidation loan, it is important to understand what factors influence whether or not you will qualify for a debt consolidation loan. Factors may differ by institution and lender, however, there are some basic criteria used by most lenders that you should be aware of. Your current credit score and credit history will be thoroughly reviewed in order to identify your ability to pay off a potential loan. A healthy credit score, without a history of late payments, will dramatically help increase your chances of getting approved. Your personal income will often commonly be examined as well as your personal assets. If you have a strong credit score, with a predictable income and established assets, you are an ideal candidate for a low-interest rate consolidation loan to consolidate your credit cards.

The second option of getting a new credit card and using it to pay off existing debt can be beneficial, however, in most cases, has extreme limitations to its effectiveness. If you already have substantial credit card debt, it may be difficult to get approved for a new credit card with a high enough limit to eradicate your existing debt, all while having an affordable minimum monthly payment and interest rate. This option is usually only a sound route to take if your debt with other credit card providers is reasonably low and you are able to take advantage of a low-interest promotional offer. Many credit card companies also refuse to allow customers to pay credit card debt with another credit card, which may act as a detriment when attempting to pay off your other credit card providers.

Other Methods to Consolidate Credit Cards

Though receiving a consolidation loan or finding a credit card with lower interest rates are strong options, there may be instances where you may be forced to consider alternatives. Bad credit, unexpectedly high-interest rates, and large minimum monthly payments may inhibit you from getting the credit card or loan you desire. So, what else can be done?

If possible, consider taking out a loan with family and friends. If you decide to take this route, have a standardized contract detailing the basic agreement of the loan. This should include things such as repayment schedules, interest rates and financial penalties. Taking out a loan with a family or friend without a formal agreement could spell disaster down the road and possibly damage close relationships. To get you started, you can download free loan agreements templates.

Liquidating investments and selling assets might seem scary at first but has the potential to free you from your current credit card debt. Seek to sell highly liquid investments and assets, ideally ones which have not depreciated in value. If you can, avoid selling assets that would be considered everyday assets which have decreased in value. Items such as cars, furniture, and electronics should be avoided. Selling assets and liquidating investments might not eradicate all debt, but might help erase some of it making your debt more manageable. After lowering your debt, you may want to consider reapplying for a consolidation loan, as you have likely improved your credit score and require a less substantial loan amount.

What to Do When You Are Denied a Loan to Consolidate Your Credit Cards

There are multiple reasons why you may have been denied a loan or another credit card to consolidate your credit card debt. In order to properly take action, you must first understand the main reasons you were denied. After understanding why you were denied, it becomes easier to take action and put yourself in a better position to be approved for a loan in the future. Speak in-depth with the representatives of the institution or lender who denied you. These individuals, contrary to popular belief, have your best interests at heart. They will provide you with insights into why you were denied and offer you advice on how you can be approved later on. Many institutions do this in the hopes of potentially gaining your business in the future after you have improved your financial position.

The most common reason for being denied relates to credit history and your current credit score. You may have outstanding debts that you were not even aware of or may even have an inaccurate claim against you. We recommend obtaining a copy of your credit score and drilling down into specifics. You can obtain credit score information fairly easily through Equifax Canada, TransUnion, or one of several online sites offering free credit scores. Once a year, you can obtain your complete credit report from the credit unions for free. If you have found any form of inaccuracy in your report, you may file a dispute and possibly have it abolished.

Managing Credit Limits After a Consolidation Limit

Though getting another credit card after consolidating debt is a smart idea, it is extremely important to have a reasonable credit limit on any and all credit cards moving forward. How high of a limit you should have on your card will vary on a case by case basis, however, there are some general rules of thumb you will want to follow.

Traditionally, you should approach credit limits in the same fashion that you would a mortgage loan. Given that you are not steeped in debt, you can comfortably take out a credit card with around 70% of the offered limit. If you have a substantial amount of debt, it may be wise to stick to the 30 to 60% range.

An alternative to consider is a secured credit card. Secured cards are backed by a security deposit you place with the financial institution issuing the card. The amount you deposit determines the limit on the card. For example, if you deposit $500, that is the maximum you can spend with the secured card. Why would this be useful?

The first reason is fiscal discipline - you can never spend more than you never on deposit. If you can't replenish the deposit amount, you can't use the card. The second reason is building a strong credit profile. Let's say you put a deposit down of $1000 on a secured card. If you used that for a small number of purchases each month ($100 or less), and then repaid that money at the end of the month, you would be establishing a good credit history and improving your overall credit score. Secured cards are available to almost everyone, regardless of credit score, which makes them ideal for people in debt management programs, consumer proposal, or even bankruptcy.

Should You Take Out Another Credit Card After Getting a Consolidation Loan?

Many Canadians, after consolidating credit card debt, find it best to completely rid themselves of their credit cards in order to minimize the possibility of falling back into greater levels of debt. Is this the right route to take? It depends. If you have a past history of getting into debt, getting out of debt and then falling right back in, it is probably smart to stay away from credit cards and other forms of long-term debt. However, if you have consolidated your debt, have made steady payments, and are confident in your ability to continue down the right path, maintaining a credit card might be a good option.

Having a credit card allows you to react to financial emergencies quickly and efficiently. Credit cards also offer ease of use and require you to carry less cash than you would normally have to. Maintaining a credit card also allows you to continue to build your credit or recover from a previous credit fiasco. If you have consolidated and maintained steady payments and are not in danger of financially crippling yourself, it is probably best to continue to have a credit card in some shape or form.

Other Types Of Loans

This is a list of other types of Loans people apply for on a daily basis with LoanConnect:

Protecting Yourself Against Debt Consolidation Loan and Debt Settlement Scams in Canada

  • Never pay money upfront, and question them as to why you are required to pay such a substantial amount prior to any form of contractual obligation
  • Thoroughly review any and all applications, agreements and other forms of documentation before ever agreeing to anything
  • Check if the company is registered with the Better Business Bureau, and check to see if any complaints have been filed against them and why
  • Never give out any form of credit information before doing your due diligence
  • Carefully compare the company to other debt-relief options

Laws and Regulations You Should Be Aware Of

Like all other types of loans, most lenders, banks and credit unions must adhere to the Loans and Trust Companies Act of Canada. The Act covers a host of laws and regulations pertaining to Loan and Trust Companies in Canada. As a borrower, here are some of the more important things you should be aware of:

  • You must be provided with a disclosure statement by the lender (this is usually found within the loan or agreement, or in some cases, is presented as a separate document)
  • There are a number of things that must be covered in the disclosure statement, but some of the more common are: the principal amount, the cost of borrowing over the length of the loan, the annual interest and if it is compounded, the Annual Percentage Rate (or APR for short).
  • If a fixed loan is being advertised and makes reference to the interest rate of the loan, the APR and term length must be conveyed as well
  • Lenders have the legal right to charge you late payment fees to recoup their losses in the event that you fail to make a minimum payment on time

These are just a few of the more notable laws and regulations. These laws and regulations are commonly amended and/or changed over time. If you find yourself in a position where you require legal aid, we highly recommend contacting a lawyer who specializes in consumer finance law.

A Closer Look at the Disclosure Statement

As mentioned above, all lenders are required to provide you with a disclosure statement by law. In order to properly protect yourself and your interests, being able to interpret this disclosure statement is paramount. Below you will find some of the more important components of the statement, what they mean and what you should look out for:

Date of Advance:

  • Is the date on which the loan amount is advanced to the borrower
  • Is the date in which interest and other charges come into effect

Principal Amount:

  • The principal amount refers to the amount of money you initially borrowed at the beginning of the loan agreement
  • Refers to the specific balance amount still owed at a specific point in time
  • The amount that is used to calculate interest amounts to be paid

Annual Interest Rate:

  • Expresses the amount of interest to be paid on the principal amount over the course of a year
  • May be fixed or variable
  • May be compounded

Annual Percentage Rate (APR):

  • Not to be confused with the annual interest rate
  • Includes both the interest rate and other charges and expenses that may be charged borrower, including Commitment Fees, Loan Insurance, Processing Fees, or any other charges.

Term Length:

  • Represents how long the term of your loan is valid for
  • Usually not a set amount of time and can exist as a range
  • Can be both open or closed
  • Open loans tend not to have prepayment penalties and have prepayment privileges
  • Closed terms have lower interest rates typically, but require you to make payments throughout the defined period of time (you may be subjected to prepayment penalties if you pay it off quicker)


  • Defines and describes the minimum monthly payment that must be paid
  • Specifies on what day of the month that payments must be issued to the lender
  • Describes where your payment is applied and how (usually payments are put towards the interest amount first and then towards the principal amount)

Loan Disclosure Statements come in varying types and formats, but use the information above to help gain a solid grasp of what is going on.

Prepayment Privileges and Penalties

Prepayment privileges and penalties refers to when you pay an amount greater than the minimum monthly payment. This section of the disclosure statements conveys if you can make prepayments, how much you are allowed to prepay and whether or not there are financial penalties as a consequence for prepaying. The vast majority of debt consolidation loans allow you to prepay an unlimited amount without facing a financial penalty. However, in instances where loans are significantly large, usually in the range of $50,000 +, you may be subjected to financial penalties for making prepayments. Most debt consolidation loans are not nearly this large, so if you are considering a debt consolidation loan, you will probably not have to worry about prepayment penalties.

Filing a Complaint in Cases of Malpractice

If you have found yourself between a rock and a hard place because you feel as though your lender is not properly abiding by the law, or has violated your loan agreement, it may be time to file a complaint. The Financial Consumer Agency of Canada requires that all financial lenders under federal regulation must have a consumer complaint handling process. It is recommended to begin at the local level and escalate as appropriate within the lender's complaint handling process, if possible.

In cases where the complaint process can not be resolved, contact the Financial Consumer Agency of Canada directly. They will provide you with guidance on what your next steps should be. It is important to note that the FCAC does not get directly involved in individual cases.

The Financial Consumer Agency of Canada (FCAC)

The Financial Consumer Agency of Canada ensures that financial institutions that are registered at the federal level comply with their responsibilities as lenders in Canada and helps protect the interests of consumers in Canada. Their website provides an array of information regarding consumer finances and is a rich resource if you are looking to learn more about consumer finance. If you are interested in learning about the FCAC, we recommend visiting their website.

What to do When a Lender is Not Regulated by the FCAC

A fair majority of private lenders are not regulated by the FCAC and are not bound by their standards. If you are having issues with a private lender, we advise you to follow their complaint resolution process. If this does not rectify the complaint, escalate the issue to the Better Business Bureau. In extreme cases, civil litigation or small claims court may be your only option.


Where can I get a debt consolidation loan?

You can get a consolidation loan from most lenders who offer loans. You can apply for one online, over the phone, or you can visit a local credit union or bank branch.

How much do debt consolidation loans cost?

Debt consolidation loans do not have a fixed cost. The cost of the loan will be the amount of interest you pay on the principal amount over time.

What are the disadvantages of a debt consolidation loan?

The disadvantages of a debt consolidation loan are the same as that of a regular loan. You will be charged interest on the amount you borrow, and in some cases that interest can be a significant cost. Defaulting on monthly payments can impact your credit score and it may be difficult to pay down the principal amount if you live above your means.

How long does it take to pay a debt consolidation loan off?

Most term lengths for a debt consolidation loan in Canada are between 2 to 5 years. There is no set amount of time that it takes to pay off a debt consolidation loan. If you have the ability, you could pay it off as quickly as a month, but be sure to choose a loan that allows early repayment.

Can I get a debt consolidation loan if I have bad credit?

Yes, in some cases you will be approved for a loan you could theoretically use to consolidate your debt. However, it is not advisable to do so because your interest rate will likely be too high to justify the loan. Consolidating through a debt management plan is probably a better option.

Will a debt consolidation loan impact my credit?

Applying for a debt consolidation loan may impact your credit if a credit check is required. Receiving a loan may also impact your score, but to what extent depends solely on your own unique situation.

What is the average interest rate for a debt consolidation loan?

Interest rates vary, but typically fall into the range of 15 to 45% for most debt consolidation loans in Canada depending on your credit score and credit history.

Where can I get debt consolidation advice in Canada?

You can speak directly to the representatives of the lender you are working worth and can also receive advice from professional credit counsellors.

How much debt do I have to have to consolidate?

There is no set amount. You should consolidate as much debt as is financially advantageous, which means consolidating debt that is at a high-interest rate with a loan of a lower interest rate. Note that if you have a high level of outstanding debt, you may not be able to borrow additional monies, even if you are paying off existing loans. Lenders may advertise they can issue debt consolidation loans, but they almost always view these loans as normal debt.




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*Borrow between $500-$60,000 with APR ranges from 8.99% to 46.96%, and loan repayment terms from 3-120 months. As an example, the total cost of borrowing a $2000 unsecured personal loan at 29.96% for 24 months is $2685.12, or $111.88 monthly. Additional administration fees may apply and vary by lender. Annual Percentage Rate (APR), loan term and monthly payments shown are estimated based on information you provide and that which is made available from our lender network. Terms are subject to final credit review and approval, and interest rates are subject to change at any time and may vary by province. Fees may apply and vary by province/territory, and may include insurance, administration, home valuations and other applicable fees. Be sure to review the lender’s Terms and Conditions and all available loan documents carefully before proceeding.
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