Personal loan debts

What is a personal loan?

A personal loan allows you to finance a wide range of individual projects through a financial institution. It is called “personal” because it is not secured by a specific asset, unlike a car loan which is protected by the financed vehicle in case of non-payment. Typically, the interest rate of a personal loan falls between that of a line of credit and a debt consolidation loan, depending on your credit score and the level of risk your financial institution believes you represent.

The advantages of a personal loan

The main advantage of a personal loan is that the funds can be spent at your discretion, as your financial institution will not require supporting documentation. Another benefit is that it comes with a fixed repayment term, usually up to a maximum of five years. This requires you to repay your personal loan debt within a relatively short and reasonable period, unlike a line of credit, which only requires interest payments. However, nothing prevents you from repaying it in full more quickly if your financial situation allows it.

Can I get a personal loan with bad credit?

Generally, individuals with credit scores of 680 or lower may have more difficulty qualifying for a loan or a line of credit. Some private lenders or high-interest loan companies may still offer you a quick loan without conducting a credit check. However, we encourage you to read about the risks of instant loans before making a decision, as the high interest rates and borrowing conditions of microloans could significantly increase your debt ratio.

What solutions are available if repaying a personal loan becomes impossible?

Since personal loans often have a lower interest rate than consolidation loans, typically between 12% and 14%, they should generally not be included in a debt consolidation. One of the main goals of consolidation is to reduce interest costs. Therefore, it’s important to consider the monthly payments and risks associated with a personal loan when assessing your financial ability to consolidate other debts.

If debt consolidation is not an option, a personal loan can be included in a consumer proposal. This option allows you to reduce your total debt, combine all your payments into one, eliminate interest, and repay the negotiated amount to your creditors over a maximum period of five years.

However, if your income does not allow you to offer a consumer proposal that is acceptable to your creditors, bankruptcy may be a simpler, less costly, and generally faster solution than other options. Your personal loan debt can also be included in bankruptcy.

The sooner you schedule an informational meeting to learn about the risks of personal loans, your rights, obligations, and all available solutions, the better your chances of regaining financial stability.