{"id":23017,"date":"2023-02-09T09:02:03","date_gmt":"2023-02-09T17:02:03","guid":{"rendered":"https:\/\/www.nerdwallet.com\/ca\/?page_id=23017"},"modified":"2024-05-06T14:20:16","modified_gmt":"2024-05-06T21:20:16","slug":"debt-consolidation-loan-vs-personal-loan","status":"publish","type":"page","link":"https:\/\/www.nerdwallet.com\/ca\/loans\/debt-consolidation-loan-vs-personal-loan","title":{"rendered":"Debt Consolidation Loan vs Personal Loan: How to Choose"},"content":{"rendered":"\n

When it comes to managing debt, less is more. Which is to say, making a single on-time payment each month is often easier than trying to keep track of many different payments. And depending on the interest rates you\u2019re being charged, it may be cheaper too.

The process through which several small debts become one larger debt is called consolidation, and there are a couple of different ways you can achieve it. Debt consolidation loans and personal loans are a couple of popular methods.<\/p>\n\n\n\n

What is a debt consolidation loan?<\/h3>\n\n\n\n

A debt consolidation loan<\/a> is a type of personal loan that has been specifically designed to combine various debts into one. <\/p>\n\n\n\n

Typically, debt consolidation loans are used when you have multiple, high-interest, unsecured debts such as credit card debt<\/a>. <\/p>\n\n\n\n

Once approved for a debt consolidation loan, your lender will provide you with the money to pay off all your other debts so you are left with a single, larger loan. <\/p>\n\n\n\n

The main draw of a debt consolidation loan is that it typically offers lower interest rates than credit cards or other lines of credit. <\/p>\n\n\n\n

Depending on your personal financial situation, you may require collateral (ie: your home or car) to be approved for a debt consolidation loan, however.  <\/p>\n\n\n\n

What is a personal loan?<\/h3>\n\n\n\n

A personal loan<\/a> allows you to borrow a fixed amount in the form of a lump sum, but it has no predetermined use. Personal loans can be secured or unsecured. <\/p>\n\n\n\n

You can use the money obtained from a personal loan for pretty much anything you want. Common uses for a personal loan include home repairs, buying a car, or financing a big purchase, like a wedding<\/a>. <\/p>\n\n\n\n

Like a debt consolidation loan, personal loans can also be used to pay off other debts, though the limits and shorter terms offered by personal loans might be a problem if you\u2019re trying to manage more than $50,000 of debt.<\/p>\n\n\n

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Debt consolidation loans vs personal loans<\/h2>\n\n\n\n
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<\/th>Debt consolidation loan<\/th>Personal loan<\/th>\n<\/tr>\n<\/thead>\n
Types<\/strong><\/td>Secured
\nUnsecured<\/td>		Secured
\nUnsecured<\/td>\n<\/tr>\n
Common uses<\/strong><\/td>To pay off high-interest debts.<\/td>Home renovations.
\nHigh-dollar purchase (car, appliances, etc).
\nExpensive life events (wedding or funeral).
\nTo pay off high-interest debts.
\n<\/td>\n<\/tr>\n
Where to get<\/strong><\/td>Banks
\nCredit unions
\nPrivate or alternative lenders<\/td>		Banks
\nCredit unions
\nPrivate or alternative lenders<\/td>\n<\/tr>\n
Typical loan limit<\/strong><\/td>$50,000 to 100,000, depending on lender<\/td>Up to $50,000, depending on lender<\/td>\n<\/tr>\n
Typical interest rate<\/strong><\/td>Ranges from 6% to 32.00% APR, depending on credit profile.<\/td>Average rate is around 10%, depending on credit profile.<\/td>\n<\/tr>\n
Typical qualification requirements<\/strong><\/td>
  • Be a resident of Canada.<\/li>
    \n
  • Be the age of majority.<\/li>
    \n
  • Have a bank account.<\/li>
    \n
  • Have collateral.<\/li>
    \n
  • Meet lender's minimum credit score.<\/li>
    \n<\/ul><\/td>