Need a Small Personal Loan? Here Are Your Best Options!

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Last updated on May 27, 2022

If you’re ever in a bind and need a small loan of up to $5,000, lenders offer small personal loans that provide you with funds quickly. There are many things you can use a small personal loan for and, similar to installment loans, they often come in handy for emergency situations like an unexpected vet visit, a death in the family or a broken-down car.

You may think charging these expenses to your credit card is the best bet, but credit cards have high interest rates (usually around 19.99%), which can make paying back your debt challenging. Instead, you could use a small personal loan to cover your unexpected expenses and repay the loan at a reasonable interest rate over time.

There are several ways to obtain a small personal loan:

  • Banks: financial institutions with a variety of financial products and brick and mortar branches.
  • Credit Unions: cooperative financial institutions offering savings and debt products from physical locations.
  • Online Lenders: specialized lenders offering loans exclusively online, interest rates may be higher than banks or credit unions.
  • Payday Lenders: short-term lenders offering high-interest (payday) loans with instant in-person approval.

What Is a Small Personal Loan?

While there is no official definition of small personal loans in Canada, most lenders offer these types of loans.

Usually small personal loans range from $1,000 and up to $5,000 in size, however, you can find some lenders that provide loans of less than $1,000. You can use a small personal loan for anything that requires a quick influx of cash like emergencies or covering short term cash flow problems.

Small personal loans typically have a moderate interest rate (lower than a credit card), and repayment terms range between a few months up to several years. You’ll make payments on your loan on a monthly or biweekly schedule, and most lenders allow you to pay off your loan ahead of schedule, without penalties.

Who Does It Best In Canada?

 LoanConnectLoans CanadaMogo
Minimum Loan Size$500$500$500
Loan TermsUp to 60 monthsUp to 60 months6–60 months
Interest Rate10%–46.96% APR based on personal credit3%–46.96%9.9%–47.72%
Minimum Credit ScoreNoneNoneNone
FundingSame day48 hours48 hours
Best ForFast cash loansComparing lendersSubprime borrowers
Learn MoreLearn MoreLearn More

LoanConnect

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LoanConnect is an online lending platform that connects you with dozens of online lenders in Canada. By filling out a single application, LoanConnect will match you with appropriate lenders, allowing you to compare interest rates and loan terms from multiple lenders. Lenders’ minimum loan amounts vary however, you can find a minimum loan of $500. Some of these lenders offer funding the same day you submit your application, making LoanConnect a good source of fast cash.

Click here to get a loan or learn more by reading our complete LoanConnect review.

Loans Canada

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Loans Canada is another online lending search engine that offers a huge variety of loans from vehicle loans and personal loans to commercial business loans. Loans Canada works similarly to Loan Connect in that a single application connects you with lenders across Canada, making it easy to compare the terms of each loan side by side. If you’re looking for a minimum loan of $500, and you want to thoroughly research your options without having to submit applications at each lender, Loans Canada is a good choice.

Click here to get a loan or learn more by reading our complete Loans Canada review.

MOGO

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Vancouver-based Mogo is a direct lender, meaning it will approve and administer your loan firsthand rather than referring you to other lenders. It provides personal loans between $500–$15,000, with interest rates ranging from 9.9%–47.72%. Mogo is unusual in that it can provide loans to borrowers with below average or poor credit scores; applicants with good or excellent credit scores may be referred to Lendful, Mogo’s partner lender.

Another thing that makes Mogo stand out is that it offers refunds on most of its loans within the first 100 days of loan activation. If you find another loan that’s a better fit for you, just return the principal loan amount to Mogo and you can get a refund of the interest and fees you paid.

Currently Mogo only works with borrowers in British Columbia, Ontario, Alberta, Manitoba, New Brunswick, Nova Scotia, PEI or Newfoundland.

Click here to get a loan with Mogo.

How to Choose the Best Provider for You

As we mentioned above, there are several different types of lenders, and the best one for you depends on several factors. Here’s what to consider when choosing a lender:

Interest Rates

It’s important to shop for the lowest interest rate on your loan, as the interest rate will impact how expensive the loan is to pay back. Banks and credit unions typically charge the lowest interest rates on personal loans, often in the single digits. Some online lenders offer comparable interest rates, but, depending on your credit profile, could offer interest rates up to 46%.

Fees

Some loans have fees associated with them. The most common is a loan origination fee, which you’ll pay when the lender extends you the loan. The loan origination fee may be a flat rate or a percentage of the total loan amount. Your lender may also charge a fee to pay off the loan early.

Customer Service

Small personal loans are a straightforward financial product, but if you need assistance, the quality of customer service offered by your lender will impact your experience. If you prefer to deal with your finances in person, a bank or credit union with a physical branch is a good choice. If you are comfortable servicing your loan online, an online lender may work for your needs.

Reviews

There are many online lenders in Canada, and reviews can help you determine which lender is right for you. Read as many reviews as possible to help you establish a clear picture of the lender’s business practices and the quality of their customer service.

How to Get a Small Personal Loan

"How

Applying for a small personal loan takes several steps, and each step is going to look a little bit different depending on the lender and type of loan you choose. Here is a high-level overview of the process to apply for a small personal loan.

1. Complete Your Loan Application

Once you’ve selected a provider, you’ll need to apply for your loan. If you choose a credit union or bank, you may need to fill out the application in person. If you choose an online lending platform, your application will be submitted entirely online.

When completing your application, be prepared to provide the following information:

  • Your name, address, and phone number
  • Your employer’s information
  • Consent for the lender to pull your credit score
  • Your financial information including bank statements
  • Proof of Canadian residency and age of majority
  • A voided cheque

2. Loan Application Processing

Once you’ve submitted your loan application, it may take several days to be approved. If your lender requires additional documentation, this is when they will ask for it, usually by email or phone. Stay available by phone or email during this time, so you can promptly respond to your lender’s inquiries, especially if you need funding quickly.

3. Loan Approval and Funding

Once your loan is approved, your funds are deposited into your account. Some online lending platforms promise funding within 48 hours, where some credit unions or banks may take longer. After you receive funding, you’ll begin making regular repayments on your loan.

Who Is Eligible for a Small Loan?

While each lender will have different criteria regarding who they will lend to, here are some basic requirements shared by almost all lenders:

* Have photo ID
* Be a Canadian citizen or permanent resident
* Be the age of majority in your province
* Be employed and able to provide proof of employment
* Have a Canadian chequing account
* Have an email address

These are the basic requirements to apply for a loan in Canada, and some lenders will also require a minimum credit score, a minimum income, and assurances that your existing debt load won’t prevent you from paying off your new loan. However, that shouldn’t discourage you from applying for a loan if you really need one. There are lenders that will give you an emergency loan even if you have a bad credit score or existing debts.

Is It Worth It?

Benefits

  • Fast personal loans up to $5,000 when you need it most
  • Small loan principal means payments are affordable
  • Loan terms up to five years
  • Interest rates lower than a credit card

Drawbacks

  • Some lenders charge very high interest rates
  • Missing a monthly payment could lead to debt and bad credit
  • Additional fees and surcharges can make loans unaffordable

Who Should NOT Go for a Small Loan?

Small personal loans aren’t the best option for everyone. Particularly, if you have a low credit score, a high existing debt load, or a low income as you may not be eligible for a small personal loan through a bank or credit union. In these cases, your only option may be an online lender.

If you choose to borrow through an online lender, you may only be eligible for loans with very high interest rates. In these cases, it’s better to look elsewhere to cover your emergency expenses.

Here are some alternate sources of funding for your emergency expenses:

  • Friends and family
  • Selling assets like old jewelry, or a sought after collection
  • Asking for an advance on your paycheque
  • Using overdraft on your chequing account
  • Charging the emergency to your credit card

If you only need a small amount to hold you over before your next payday, you might want to consider KOHO, a hybrid chequing account, prepaid visa card, budgeting, and savings starter that has introduced an Early Payroll feature. If you set up a direct deposit of your paycheque into your KOHO account, you can access $100 three days before you get your next income.

If these sources of funding aren’t options for you, and you choose to work with a lender offering a high-interest rate, take time to read the fine print. Make sure you have a clear understanding of your monthly payment obligations, whether there are any additional fees included, and whether you can pay off the loan early.

Make sure the interest rate on the loan isn’t so high that you’ll have trouble paying it off. This situation can create a cycle of borrowing new money continuously to pay off your previous loan, which is extremely expensive and a difficult cycle to break.

Our Bottom Line

If you’re facing an emergency or unexpected expense, the last thing you want to worry about is how you are going to pay for it. Small personal loans can be a good option to cover a short-term cash deficit, but be wary of high-interest rates. If possible, tap your personal network of friends and assets to cover your emergency first. If those resources aren’t available, compare prices from multiple online lenders to find the best personal loan for you.

FAQs

Personal loans are usually unsecured meaning you don't have to put up an asset, such as a car or a mortgage, as collateral.
Although it depends on the lender, there are lenders who accept people with bad credit, though interest rates might be higher.
Similar to people with bad credit, you can still get a loan if you don't have a steady income, it all depends on your lender. Just keep in mind the difficulty and discipline involved in taking a loan with no income.

 

Recommended Read: Best Low-Income Loans in Canada.

Author Bio

Jordann Brown
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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