Short-term loans in Canada: Find the best lenders
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Updated: April 11, 2024
Even the best laid plans often go awry, and if you’ve dutifully paid down debt, saved for emergencies, and purchased the appropriate insurance, you may find yourself needing an emergency infusion of short term cash. In this case, a short term loan could bridge the gap between your emergency cash requirements and the money you have on hand. Short term loans aren’t appropriate for every situation, so keep reading to find out if a short term loan is right for your financial emergency.
What are short term loans?
Typically, a short term loan is a loan with a length (or term) of one year or less. These loans are usually for relatively small amounts (under $5,000) and are paid back with fixed monthly, weekly, or biweekly payments. Depending on the loan and the interest rate you’re charged, the amount of interest you’ll pay could vary dramatically.
Where can I find a short term loan?
If you’re looking for a source of short-term cash with a quick turnaround time and flexible terms, the lenders on the list below can meet your needs even if you have a lower credit score.
Loans Canada
Loans Canada is one of the most popular online lending platforms in Canada. It offers loans for almost any circumstance, including vehicle loans, small business loans, consolidation loans, and short term loans. Loans Canada is not a lender itself, but instead, it is a loan aggregator that will match your application with lenders in your area. Loans Canada offers short term loans with terms between 3 to 60 months, and interest rates between 1.99%-46.96%. You don’t need to have a good credit score, although having a good score will secure you a better interest rate.
LoanConnect
LoanConnect is another lending platform that connects Canadians with lenders offering short term loans. You can apply for a loan through LoanConnect even if you have bad credit or a previous bankruptcy, and this platform offers loans with interest rates from 6.99%-46.96%. The interest rate you’re charged will depend on your credit rating and financial circumstances. You must be the age of majority and be a Canadian citizen to apply for a short term loan through LoanConnect.
Fairstone
Fairstone Loans offers short-term, high-interest loans for Canadians. This lender offers terms 6 to 120 months and an online application process that provides pre-approval in 15 minutes. The interest rates on Fairstone loans are higher, 19.99%-39.99%, and you’ll pay back the loan in installments monthly, weekly or biweekly.
Types of short term loans
There are several types of short term loans available in Canada, each with their own characteristics, terms, and interest rates.
Credit card cash advances
Borrowing money from your credit card in the form of a cash advance is technically a short term loan. The interest rate is usually in the range of 24%, and interest starts accumulating as soon as you make your withdrawal. You can withdraw as much as your credit limit allows. Credit card cash withdrawals are a revolving credit tool, which means you do not pay the loan back in installments, but because the interest rate is high, you should try and pay it back as quickly as possible.
Installment loans
Installment loans can be procured from a traditional lender or an online or alternative lender. The interest rates on these types of products can vary from 5% up to 45%, depending on your credit profile. The terms of these loans can range from a few months to a year or more, and you’ll pay the loan back in monthly, weekly, or biweekly installments.
Payday loans
Payday loans typically have very short terms (for example, two weeks), very high interest rates (up to 600%), and smaller amounts (usually up to $1,500). While approval and funding are generally available on the day you apply, the loans need to be paid back in a single installment at the end of the loan.
What can they be used for?
Short term loans are best used when you need cash for an emergency. Like if, for example, your car suddenly needs costly repairs and you’ve exhausted your emergency fund. You should only use short term loans in real emergencies when you have no other options because of the high interest rates. Expenses such as vacations or new furniture purchases are not emergencies and are not good candidates for short term loans.
Sometimes you’re in need of a short term loan but your credit score is too low to apply through most lenders. Luckily, there are a number of emergency loans you can apply for with bad credit.
Who is eligible?
To qualify for a short term loan, you should be employed and be able to provide proof of your income. You’ll also need a chequing account and a reasonably good credit score. Some short term lenders specialize in customers with poor credit or do not perform credit checks, but those lenders will have higher interest rates than others.
When is a short term loan suitable?
Due to the higher interest rates associated with short term loans, you should only opt to apply for one if you have already exhausted all of your cash reserves. If you qualify for a short term loan that has a very high interest rate, you should consider asking for a loan from family, using a credit card cash advance, or selling assets like furniture instead.
We offer these words of caution because, for some of these loans, the interest rates are so high that some Canadians have difficulty paying them back and end up stuck in a loop of recurring short term loans. This situation is best to avoid at all costs, even if it means asking for a helping hand from friends and family or selling your collection of comic books.
If you have no other way to cover your short term cash flow issues, a short term loan could be a suitable option. Just make absolutely sure, and we cannot stress it enough, that you have a plan to pay back your loan, including any extra interest charges or fees.
Pros and cons of short term loans
Pros
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Shorter terms
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Fast approval
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Quick funding
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Some lenders do not require a good credit score
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Flexible repayment terms
Cons
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High interest rates
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Extra fees to underwrite or pay off the loan
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Could lead to a cycle of continuous borrowing
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May hurt your credit score if you default or miss payments
Final word
Short term loans are not suitable for all Canadians, because the higher interest rate makes these types of loans a costly source of cash. If you find yourself needing money, you should explore all other options first. If other options aren’t available, short term loans might be suitable, as long as you carefully research the interest rates and fees charged. Make extra sure you can afford to pay back the loan on time and make plans to ensure you don’t end up in this situation again.
Jordann Brown is a freelance personal finance writer whose areas of expertise include debt management, homeownership and budgeting. She is based in Halifax and has written for publications including The Globe and Mail, Toronto Star, and CBC.
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