What types of loans are available in Canada?

Loans in Canada come in two types – fixed and variable.

The first type is loans with a fixed interest rate for a specific period of time; throughout this entire period the rate does not change, regardless of what is happening in the economy or whether the Bank of Canada raises or lowers its rate. Usually, these loans are issued at a higher interest rate (since I have not been arranging loans for quite some time, I assume the rate is 8%+).

The second type depends on the Bank of Canada’s rate (prime) and varies accordingly. Note that if your rate is, for example, prime + 3, and prime goes down (or up) because the Bank of Canada changed its rate, you still continue to make the same payment as before, but now a smaller (or larger) part of your payment goes to interest, and you will repay your loan earlier (or later) than originally scheduled. In other words, your payment stays the same, but depending on rate decreases or increases, the principal of the loan will be paid down faster or more slowly.

When you take out a loan, you choose which type to take yourself. Usually, interest rates on a variable loan are lower than on a fixed one.

Also, if you are taking a line of credit or a loan, all else being equal, the interest rates on a line of credit are usually slightly lower.

The vast majority of people take a variable‑rate loan; many have become used to the idea that interest rates in Canada only go down.

A loan is easier to get than a line of credit. Instalment debt, which is what a loan is, has an end date, whereas revolving debt, such as a line of credit (or a credit card), does not and can hang over you for years. Banks prefer good clients who have lines of credit, and less good ones – with loans. And they prefer to give credit cards to almost everyone, since carrying a balance at credit‑card interest rates already indicates that a person is not really creditworthy (i.e., is in a poor financial situation).

You can take a loan where the bank (or the organization issuing the loan) asks for collateral; the most common collateral is a car when you buy one. The presence of collateral does not at all guarantee that the loan’s interest rate will be lower than without collateral (it’s just that without collateral you might not get the loan at all, or they might refuse to sell you the car).

Also, when you buy a car privately, check that there is no lien registered against it, otherwise the bank can simply take this car away from you, since the previous owner will no longer be making payments on it (after all, he has already received money from you!).

You can do this check through Carproof if you know the car’s VIN. I recommend reading this article before buying a car privately:
https://www.carproof.com/resource-centre/articles/what-is-a-lien

I believe this problem should not arise if you bought the car through a dealer.

The size of the loan you can get from a bank depends, just as with a line of credit, on your financial situation – income, expenses, debts, credit history, and assets. The more stable the situation, the more debt you can take on (which immediately raises the question – why? If the situation is good, why would you want the headache of more debt?).

You can get loans from any bank; it does not have to be the same bank where you keep your chequing account. However, note that if you have never had anything with this bank before, it is quite likely they will refuse you a loan, because any new client who immediately asks for a loan is a risk for them. The exception is credit cards – you can collect them from a bank where you personally have never even set foot.

What loan amount you can count on depends on your credit history, the number of loans and financial obligations (which include property tax, heating, alimony, etc.), income, and assets.

To calculate your Total Debt Service Ratio, you can use the calculator:
https://www.moneyinside.ca/calc/calc_tds.htm

If your ratio (i.e., the ratio of payments to income) is higher than 42%, it will be very difficult to get a loan, and if you do get one, the interest rate will be high.