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A Guide to Debt Consolidation Loans Ontario

Homeowners in Ontario don’t have to juggle multiple credit cards, mortgages, and other financial demands, as multiple payments can become a handful to manage. Debt consolidation loans in Ontario help simplify your finances and payments. Many loan options are available, so read on to learn about how to choose the right one. 

What Is a Debt Consolidation Loan in Ontario?  

It is a significant loan from a financial institution or alternative lender to help consolidate debts. Borrowers receive the funds and use them to pay off their outstanding balances. After repaying the multiple debts, they can focus on paying back the single loan. 

Each institution has its criteria and will have different expectations based on your financial situation. Some lenders may inspect a borrower’s payment and credit history, while others may look at separate aspects like the value of your home equity instead.  

A couple holding a miniature home

Why Consider Debt Consolidation in Ontario?

Consolidating doesn’t have to be a last resort. You can do it to simplify your monthly payments and improve your overall financial situation. The results of getting a debt consolidation loan in Ontario are: 

  • More proactive than credit counselling—while credit counsellors can negotiate on your behalf to reduce credit burden or develop debt management plans with you, debt consolidation loans in Ontario are quicker and can be done more independently.  
  • Reduced interest payments—it usually has lower interest rates than credit cards and the accumulated interest from unsecured debts. 
  • New budgeting plans—after receiving some debt relief through a consolidation loan, you can start a new financial plan that allows you to save for some of your goals.  
  • Simplified monthly payment—consolidation loans can be worth more than your outstanding debts, allowing you to focus on repaying a single loan payment. 
  • Credit score improvement—the credit bureau will see that your loans and credit card debts are satisfied and adjust your credit rating accordingly.  

Debt Consolidation Options Available in Ontario 

Balance transfer credit cards 

It is common for Canadians to have credit card debt across multiple lines, so to reduce overall interest and the number of payments, people may apply for another credit card that consolidates their outstanding credit card balance. 

A balance transfer card typically has lower interest rates than a classic credit card, and some banks even offer cards with no interest in the first few months. Since traditional financial institutions usually offer balance transfer credit cards, applicants must meet a specific criterion, such as having a good credit score or a stable income history.  

Transferring the balances may come with a fee equal to a small percentage of the overall balance. When discerning if a balance transfer credit card is right for you, compare the interest rate and balance transfer fees to see if it helps you save money overall. 

Unsecured loans 

When it comes to loans, most people may think of unsecured loans first, and they can be from both banks and alternative lenders. An unsecured loan is a lump sum of money eligible borrowers can put towards extra expenses or consolidating. The interest rate can be lower than credit card interest rates, but it will depend on your credit score and how the lender rates your creditworthiness. 

Typically, individuals with higher credit scores are offered larger loans with lower interest rates, which can be lower than credit card rates. Meanwhile, those with lower credit scores are offered smaller loans with higher interest rates.  

Unsecured loans are not secured by an asset, so lenders prefer borrowers with a more favourable financial history. Creditworthiness acts as a form of security for the lender as it is more likely that the borrower will be able to repay the loan. 

Secured loans 

Secured loans are the opposite of unsecured loans, backed by one of the borrower’s assets. The most common assets are a piece of property or a vehicle. Because valuable items secure the loan, it typically comes with a lower interest rate and more flexible standards than its counterpart, unsecured loans. 

The important detail about secured loans is that the collateral asset can be collected if the borrower is unable to fulfill their obligation to repay the loan—this is where the lender obtains their ‘security’. Secured loans are more flexible and available but remember to assess your finances to see if you can maintain such a loan through its repayment term.

Home equity loans 

A home equity loan is a type of secured loan that usually has the fewest requirements compared to other types of consolidation loans. As a secured loan, home equity loans are based on the equity of your property and are thereby secured by the property. 

home equity calculation in Canada

As a result of the security that comes from property, credit scores and financial history are not usually a big part of the approval process. Instead, equity, the difference between your outstanding mortgage balance and your property value, plays a bigger role. This loan can reach higher values and have comparatively lower interest rates than credit cards and other loans. 

You can find it at both banks and alternative lenders. At the bank, getting a home equity loan may require applicants to have a good financial history and credit score. Alternative lenders, like Alpine Credits, only consider your home equity. 

Ontario Debt Consolidation Loan Application Process 

With Alpine Credits, the application process and the criteria are simple. It’s straightforward and quick, allowing you to access financial support within a short timeframe. 

  1. Fill out an application form—the application form can be completed online. You only need to provide your home equity and personal details. Your credit score and income don’t affect the outcome of your approval.
  2. Receive the loan—you will receive the funds within a few days of the application. If you have enough home equity, you’re eligible for a loan. 
  3. Pay outstanding debt—since it’s a loan to consolidate your debt, be sure to use it for that purpose rather than for additional expenses. 

If you have more questions regarding home equity loans or the application process, you can contact a Financial Solutions Specialist at Alpine Credits.

Considerations Before Getting A Debt Consolidation Loan 

Consolidating debt is a big financial decision but can ultimately be beneficial. Before fully committing to it as the proper solution, remember to consider some key factors of consolidation loans. While there are many others to remember, some of the important ones are the following.  

  • Your budget—it is important to be realistic and review your finances to see if your budget can handle additional financial obligations. 
  • Loan purpose—Whether the loan is for consolidation or a down payment on a house, it is important that the money has a clear purpose. 
  • Loan terms and repayment plan—comparing offerings from different lenders is important because they will differ, and you must choose what is best for your situation. 

Managing finances after consolidating  

Consolidating your debts with a loan are a great solution for reducing the number of payments and increasing your credit score. Despite being a popular way to help people with their finances, having your balances consolidated is an even better opportunity to build good financial habits. 

Conclusion: Debt Consolidation Loan in Ontario 

Everyone in Ontario has unique financial challenges, like everyone else in neighbouring provinces, but the same solutions are available. One of the more common solutions is a consolidation loan, which allows you to reduce your debt sooner rather than later. Consolidation loans can help you achieve financial stability because they can reduce your monthly payments and help you plan your finances differently.

Banks and various lenders offer both unsecured and secured loans. Alpine Credits offers a secured home equity loan that can cover all your outstanding obligations. The interest rates are comparatively lower because it is a secured loan, and the application and approval requirements are more flexible. 

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Frequently asked questions

The average rate of a consolidation loan will be lower than 19% since credit cards usually have that much interest. Depending on the lender and their requirements, you may get a loan with a rate between 8% to 15%. 

Getting a loan to consolidate your financial demands is possible, even with bad credit. By getting a home equity loan, you can get approved for a substantially larger loan with comparatively lower interest, regardless of your credit score.  

If you cannot fulfill your consolidation loan, a few possibilities could happen, such as late payment fees, changes to your credit score, and asset collection. It all depends on your agreement with your lender. 

There might be a temporary decrease in your credit score, but it can improve over time as you consistently pay down the loan.

Lenders may advertise different ways to use the loans, but ultimately, it’s up to the borrower how they want to use the funds.