Types of Loans Available in Canada

A loan is money borrowed from a bank, credit union, online lender or other provider. You repay the amount borrowed, usually with interest, according to an agreed schedule.

But knowing what you want the money for doesn’t always tell you which type of loan to choose. A personal loan and line of credit could both pay for a renovation, for example, but one gives you a fixed lump sum while the other lets you borrow repeatedly.

To apply for a loan, you’ll typically be asked for your identity, income, address, and Social Insurance Number. The lender will review your application, and depending on the loan, they may also review your credit score.

A lender decides whether to approve you, how much you can borrow and what interest rate to offer. The decision may be based on your income, assets, credit score, credit history and current debt.

You repay the principal amount along with interest and any applicable fees. Before accepting a loan, compare the rate, payment schedule, repayment period and total borrowing cost. A lower monthly payment can still cost more overall if it stretches the debt over a longer period.

Personal loan vs. personal line of credit

A personal loan is a lump sum you repay in regular instalments over a set term, typically used for a known expense or to consolidate higher-interest debts. A personal line of credit is revolving: you draw on it up to a limit, repay and borrow again without reapplying.

The short version is that a personal loan suits a cost you can price in advance, and a line of credit suits costs that arrive unevenly — with the caveat that continued access can keep a balance alive longer than you intended.

Read a fuller comparison of personal loans and lines of credit.

Mortgages and home-equity borrowing

A mortgage finances the purchase of real estate. The property secures the loan, and the balance is generally repaid over many years.

A home equity line of credit (HELOC) or home equity loan lets an existing homeowner borrow against the equity in a property. A HELOC works like a revolving line of credit: you withdraw money as needed, repay it and borrow again. A home equity loan, sometimes called a second mortgage, provides a lump sum with scheduled payments.

Home-backed borrowing may offer lower rates or higher limits than an unsecured personal loan because the property secures the debt. If you can’t repay what you borrow, your home may be on the line.

Student loans

Government student loans help eligible students pay for post-secondary education and related costs. Eligibility and funding depend on factors such as financial need, enrolment and province or territory of residence, and there's a separate application process to work through.

Canada Student Loans have been permanently interest-free since April 1, 2023, although interest may apply to some provincial portions. A student line of credit from a bank is a different product with terms set by the lender.

Car loans

A car loan finances the purchase of a new or used vehicle. The vehicle usually secures the debt, and the lender may repossess it if you stop making payments.

Compare the full borrowing cost rather than focusing only on the monthly payment, particularly when considering a longer term. If you already have a car loan and your circumstances change, it may be possible to transfer it to someone else.

RRSP loans

An RRSP loan lets you borrow money to make a registered retirement savings plan contribution. The contribution may generate a tax deduction, but the loan still charges interest. Compare the expected tax benefit with the borrowing cost, and make sure the repayments fit within your budget.

Some short-term lenders place less emphasis on credit history, but easier approval doesn't mean safer borrowing.

A payday loan is generally repaid from a future paycheque and can be substantially more expensive than conventional credit. The lender usually requires proof of income and access to your bank account rather than a credit check, which is what makes approval fast. Charges and borrower protections vary by province, and rolling a payday loan over into a new one is how a small shortfall becomes a much larger debt.

A pawn loan is secured by an item you hand over. A pawnbroker appraises it, lends you a portion of its value and keeps it until you repay. There's no credit check and no credit damage if you don't repay — but the pawnbroker keeps the item and can resell it.

A car title loan uses a vehicle you own as collateral; the lender may take it if you default.

Before using any high-cost loan, compare the total amount you'll repay and whether a lower-cost alternative is available. A personal loan, a line of credit, a higher credit card limit or overdraft protection will usually cost less, though each depends on qualifying. No credit check doesn't mean no cost or risk.

A business loan is intended for expenses such as equipment, inventory, operating costs or expansion. Approval may depend on the business’s revenue, cash flow, operating history and plans. A lender may also consider the owner’s personal credit or require a personal guarantee.

A personal loan is approved based primarily on the individual borrower. It may be available to someone whose business has a limited financial history, but the debt sits with that person and the lender may restrict business use.

Other business-funding options work differently. A grant doesn’t need to be repaid, but eligibility and permitted uses may be narrow. A merchant cash advance provides money based on future sales and is repaid through incoming transactions. Its cost may be expressed as a factor rate rather than an interest rate, so compare the total repayment amount carefully.

» MORE: Do you need a business bank account?

Consider a few questions before applying: