Best Debt Consolidation Loans in Canada (2026): Compare Rates & Get Approved

If you’re juggling multiple credit cards, payday loans, or high-interest debts, a debt consolidation loan can combine everything into one payment with a lower interest rate. We compared Canada’s top consolidation loan providers to help you find the best option for your situation.

Quick answer: Most people should start with LoanConnect or Loans Canada to compare rates from 50+ lenders at once. If you have good credit, check Fairstone or your bank directly for the lowest rates.

What Is a Debt Consolidation Loan?

A debt consolidation loan is a single loan that pays off your existing debts, leaving you with one monthly payment. Benefits:

• Lower interest rate: 7-25% vs 19-30% on credit cards
• One payment: Easier to manage than multiple creditors
• Fixed term: Know exactly when you’ll be debt-free
• Potential credit boost: If you pay on time and don’t rack up new debt

How it works:

1. Apply for consolidation loan
2. Lender pays off your creditors directly (or gives you funds)
3. You make one monthly payment to the lender

Best Debt Consolidation Loan Options in Canada (2026)

Best for Comparing Multiple Lenders: Loans Canada

What it is: Loan aggregator platform that checks 50+ Canadian lenders at once

Best for:

• Comparing rates quickly without multiple credit checks
• Bad credit or bruised credit (300-650 credit score)
• Finding lenders who actually approve your situation

Pros:

• One application, multiple offers
• Soft credit check (doesn’t hurt score)
• Lenders compete for your business = better rates
• Free service

Cons:

• Rates vary widely depending on credit
• Not all lenders shown are equal quality

Typical rates: 7.99% - 46.93% depending on credit
Loan amounts: $500 - $50,000
Approval time: 60 seconds for offers, 24-48 hours for funding

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Best for Multiple Lender Options: LoanConnect

What it is: Matches you with lenders based on your specific situation

Best for:

• Homeowners who can leverage home equity
• Self-employed or variable income
• Comparing traditional banks + alternative lenders

Pros:

• Network of traditional and alternative lenders
• Specializes in complex income situations
• Can arrange secured loans (lower rates)

Cons:

• Some partner lenders charge high rates
• May require more documentation than competitors

Typical rates: 6.99% - 46.96%
Loan amounts: $1,000 - $50,000
Approval time: 24-48 hours

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Best for Good Credit: Fairstone Financial

What it is: Direct lender with branches across Canada

Best for:

• Good credit (650+)
• Want face-to-face service
• Prefer dealing with one lender directly

Pros:

• Lower rates for good credit (starting at 8.99%)
• In-person service at 240+ branches
• Flexible terms up to 60 months

Cons:

• Harder to qualify than loan aggregators
• Fewer options if your credit is poor
• May require collateral for lower rates

Typical rates: 8.99% - 19.99% for qualified applicants
Loan amounts: $3,000 - $50,000
Approval time: Same day to 2 days

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Best for Bad Credit: Spring Financial

What it is: Alternative lender specializing in bad credit loans

Best for:

• Credit score under 600
• Previous bankruptcy or consumer proposal
• Denied by traditional lenders

Pros:

• Approves bad credit (even under 500 score)
• Fast approval (often same day)
• Reports to credit bureaus (builds credit)

Cons:

• Higher interest rates (26.99% - 46.96%)
• Shorter terms (up to 60 months)
• Smaller loan amounts

Typical rates: 26.99% - 46.96%
Loan amounts: $500 - $35,000
Approval time: 24 hours

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Best for Low Interest (Good Credit): Banks

Who qualifies: Credit score 700+, stable income, low debt-to-income ratio

Top bank options:

Pros:

• Lowest interest rates in Canada
• Established reputation
• Can bundle with other banking products

Cons:

• Strict credit requirements (700+ score typically)
• Slow approval process (3-7 days)
• May require existing banking relationship
• Won’t approve bad credit

Bottom line: If you have excellent credit, start with your bank. If not, use a loan aggregator to compare alternative lenders.

How to Choose the Best Debt Consolidation Loan

1. Check Multiple Lenders (Use Aggregators First)

Best strategy:

1. Use Loans Canada or LoanConnect to get 5-10 offers
2. Note the best rates and terms
3. Apply directly with your bank if you have good credit
4. Compare final offers side-by-side

2. Look Beyond the Interest Rate

Total cost includes:

• Interest rate (APR): The headline number
• Origination fees: 1-5% of loan amount
• Early repayment penalties: Some lenders charge to pay off early
• Monthly fees: Administration or service fees

Example comparison:

Bank A looks best, but Lender C is actually slightly worse once you add the $500 origination fee.

3. Match Loan Term to Your Situation

Shorter terms (1-3 years):

• ✅ Pay less total interest
• ✅ Debt-free faster
• ❌ Higher monthly payments

Longer terms (4-7 years):

• ✅ Lower monthly payments
• ✅ Easier to afford
• ❌ Pay more total interest
• ❌ Stay in debt longer

Sweet spot: 3-5 years balances affordability and total cost.

4. Consider Secured vs Unsecured

Unsecured loans:

• No collateral required
• Higher interest rates (7-46%)
• Faster approval

Secured loans (collateral-based):

• Use home equity, car, or savings as collateral
• Lower interest rates (5-15%)
• Risk losing asset if you default

HELOC (Home Equity Line of Credit):

• Lowest rates (prime + 0.5% = ~7.5% in 2026)
• Flexible borrowing
• Risk losing home if you can’t pay

For details on using a HELOC for debt consolidation, see our dedicated guide.

Debt Consolidation Loan Requirements

What You Need to Qualify

Minimum requirements (most lenders):

• Age 18+ (19+ in some provinces)
• Canadian resident
• Active bank account
• Valid email and phone
• Minimum income (varies: $1,500-$2,500/month)

What improves approval odds:

• Credit score 650+ (good credit)
• Stable employment (6+ months)
• Low debt-to-income ratio (under 40%)
• No recent bankruptcy or consumer proposal
• Own your home (even if mortgaged)

Credit score impact on rates

Don’t know your credit score? Check for free:

• Borrowell (TransUnion score)
• Credit Karma (Equifax score)
• Your bank’s mobile app (most offer free score)

If consolidation won’t work for your situation, compare consumer proposal (60-80% debt reduction) and all debt relief options to find the best fit.

Debt Consolidation Loan vs Other Options

Consolidation Loan vs Consumer Proposal

If you can’t qualify for a consolidation loan or payments are unaffordable, explore a consumer proposal:

Calculate Consumer Proposal Savings →

Consolidation Loan vs Balance Transfer Credit Card

Bottom line: Balance transfers are great if you can pay off debt during the 0% promo period. Otherwise, consolidation loans provide certainty.

Consolidation Loan vs Debt Management Plan (DMP)

Free credit counselling agencies in Canada:

• Credit Counselling Society
• Credit Canada
• Consolidated Credit

Common Mistakes to Avoid

❌ Mistake 1: Not Shopping Around

Problem: Taking the first offer without comparing

Solution: Get quotes from at least 3-5 lenders. Use aggregators to compare quickly.

❌ Mistake 2: Focusing Only on Monthly Payment

Problem: A lower monthly payment over 7 years costs MORE in total interest than a higher payment over 3 years

Example:

• $20,000 at 15% over 3 years = $694/month, $4,984 total interest
• $20,000 at 15% over 7 years = $367/month, $10,828 total interest

You pay $5,844 MORE for the lower payment.

Solution: Choose the shortest term you can afford.

❌ Mistake 3: Running Up Debt Again

Problem: 70% of people who consolidate debt rack up new credit card balances within 2 years

Solution:

• Cut up credit cards (or freeze them)
• Switch to debit or cash-only
• Address underlying spending issues
• Build emergency fund ($1,000 minimum)

❌ Mistake 4: Ignoring the Root Cause

Problem: Consolidation treats the symptom (multiple debts) not the cause (overspending, low income, unexpected expenses)

Solution:

• Create a budget and track spending
• Increase income (side gig, raise, better job)
• Build emergency savings
• Address lifestyle inflation

❌ Mistake 5: Consolidating Federal Student Loans

Problem: Federal student loans have unique protections (Repayment Assistance Plan, interest relief, 6-year limitation after leaving school)

Solution: Keep federal student loans separate. Only consolidate high-interest debts.

❌ Mistake 6: Paying for “Credit Repair” Services

Problem: Scam companies charge $500-$2,000 to “fix your credit” before applying for loans

Solution: Credit repair companies can’t do anything you can’t do yourself for free. Just apply directly—legitimate lenders work with all credit levels.

Step-by-Step: How to Get a Debt Consolidation Loan

Step 1: Calculate What You Need

Add up all debts to consolidate:

• Credit card balances
• Personal loans
• Payday loans
• Medical bills
• Other high-interest debts

Don’t include:

• Mortgage (too large, low rate already)
• Car loans (secured, usually low rate)
• Federal student loans (special protections)

Use our calculator:

Calculate Total Debt Amount →

Step 2: Check Your Credit Score

Free options:

• Borrowell (TransUnion)
• Credit Karma Canada (Equifax)
• Your bank’s app

Why this matters: Your credit score determines which lenders will approve you and what rate you’ll get.

Step 3: Get Pre-Approved by Multiple Lenders

Best approach:

1. Start with loan aggregators (soft credit check, doesn’t hurt score)
2. Get 5-10 pre-approval offers
3. Compare rates, terms, total cost
4. Apply with top 2-3 options

Step 4: Gather Required Documents

Most lenders need:

• Government-issued ID (driver’s license, passport)
• Proof of income:
  • Pay stubs (last 2-3 months)
  • Tax returns (last 2 years for self-employed)
  • Bank statements (last 3 months)
• Proof of address (utility bill, lease, mortgage statement)
• List of debts to consolidate (account numbers, balances, creditor info)

Step 5: Submit Full Application

Choose your top lender and complete the full application.

Timeline:

• Application: 10-30 minutes
• Initial decision: Same day to 48 hours
• Document review: 1-3 days
• Funding: 1-5 business days after approval

Step 6: Pay Off Your Creditors

Two methods:

Direct payment (best):

• Lender pays your creditors directly
• You provide creditor account info
• Ensures debts are actually paid off
• No temptation to use the cash elsewhere

Lump sum to you:

• You receive funds, then pay creditors yourself
• More flexibility but requires discipline
• Get payoff letters from each creditor first

Step 7: Close or Freeze Credit Cards

Critical step to avoid new debt:

Option 1 - Close cards:

• Eliminates temptation
• May hurt credit score temporarily (reduces available credit)
• Can’t reopen easily

Option 2 - Freeze cards (better):

• Keep accounts open (better for credit score)
• Cut up physical cards
• Remove from online accounts
• Don’t memorize numbers

Keep ONE card with low limit ($500-1,000) for emergencies only.

Step 8: Set Up Automatic Payments

Why: You’ll never miss a payment, which:

• Protects your credit score
• Avoids late fees
• Builds positive payment history

Set payment for 2-3 days after payday so funds are always available.

When a Debt Consolidation Loan Might NOT Work

You’re a BAD candidate if:

❌ Your credit is too damaged (under 500) - You likely won’t qualify or rates will be 46%+, making it unaffordable
→ Try instead: Consumer proposal or debt settlement

❌ You can’t afford even the consolidation payment - If the monthly payment is still too high, you’ll default
→ Try instead: Consumer proposal (lower payments, debt reduction)

❌ You have over $50,000 in unsecured debt - Most lenders cap at $35-50k, and payments will be very high
→ Try instead: Consumer proposal (reduces total debt by 60-80%)

❌ You haven’t addressed spending issues - You’ll just rack up new debt on top of the consolidation loan
→ Try instead: Credit counselling + budgeting + income increase before consolidating

❌ Your debt is mostly secured (mortgage, car) - Consolidation loans are for unsecured debt
→ Try instead: Refinance mortgage, negotiate with secured lenders

❌ Your debt is mostly federal student loans - Consolidating federal loans loses special protections
→ Try instead: Repayment Assistance Plan, keep student loans separate

Alternatives to Consider

If consolidation won’t work, explore:

1. Consumer Proposal (60-80% debt reduction)
Calculate Your Savings →

2. Debt Settlement (40-60% reduction, lump sum required)

3. Credit Counselling (free service, debt management plan)
Free agencies: Credit Counselling Society, Credit Canada

4. Bankruptcy (last resort, eliminates debt but severe consequences)
Learn about bankruptcy →

5. Wait out statute of limitations (if debt is old and you’re judgment-proof)
Check limitation periods by province →

Frequently Asked Questions

Does applying for a consolidation loan hurt my credit score?

Soft credit checks (pre-approval): No impact on credit score
Hard credit checks (full application): 5-10 point temporary drop per inquiry

Strategy: Use loan aggregators like Loans Canada first (soft check only) to get multiple offers without hurting your score.

Can I consolidate debt if I have bad credit?

Yes, but rates will be higher. Lenders for bad credit:

• Spring Financial (approves under 600)
• Fairstone (approves 550+)
• Credit unions (more flexible than banks)

Rates: Expect 26-46% for scores under 600.

Alternative: If rates are too high, a consumer proposal might save more money by reducing total debt instead of paying high interest.

How long does it take to get approved?

Timeline varies by lender:

• Online lenders: 24-48 hours
• Loan aggregators: 60 seconds for offers, 1-2 days for funding
• Banks: 3-7 days
• Credit unions: 3-5 days

Fastest: Online alternative lenders and loan aggregators.

Will consolidating debt improve my credit score?

Short-term: No, might drop slightly due to hard credit inquiry

Long-term (6-12 months): Yes, if you:

• Make all payments on time
• Don’t open new credit cards
• Keep old accounts open (increases credit age)
• Lower credit utilization ratio

Can I include my mortgage in a debt consolidation loan?

No. Mortgages are:

• Too large for personal loans
• Secured by property
• Already have low interest rates

Alternative: Refinance your mortgage to pull out equity for debt consolidation (usually requires 20%+ equity).

What’s the maximum debt I can consolidate?

Typical limits:

• Most lenders: $35,000-$50,000
• Some specialty lenders: Up to $100,000
• Banks with collateral: $150,000+

If you have more: Consider a consumer proposal (handles up to $250,000).

Can I pay off a consolidation loan early?

Usually yes, but check for penalties. Some lenders charge:

• Early repayment penalty: 1-3 months of interest
• Discharge fee: $50-$150

Best lenders: No prepayment penalties (most online lenders, credit unions).

What if I miss a payment on my consolidation loan?

Consequences:

• Late fee ($25-$50)
• Interest continues accruing
• Negative mark on credit report (if 30+ days late)
• Risk of default (if multiple missed payments)

Solution: Contact lender IMMEDIATELY. Most offer:

• Payment deferral (skip one payment)
• Payment plan modifications
• Hardship programs

Do I need collateral for a debt consolidation loan?

No (unsecured loans). Most consolidation loans are unsecured, meaning no collateral required.

Secured options (lower rates):

• Home equity loan or HELOC
• Vehicle as collateral
• Savings or investments as collateral

Trade-off: Lower rates but risk losing the asset if you default.

Bottom Line: Should You Get a Debt Consolidation Loan?

✅ Get a consolidation loan if:

• You have $5,000-$50,000 in high-interest debt
• Your credit score is 600+
• You can afford the monthly payments
• You’ve addressed spending habits that caused debt
• You want to simplify payments and pay less interest
• Creditors are calling but not yet suing

❌ Skip consolidation if:

• Your credit is under 500 (rates too high)
• You can’t afford even the consolidated payment
• You have over $50k debt (consider consumer proposal)
• You’ll likely rack up new debt on credit cards
• Your debt is mostly secured (mortgage, car)
• You’re facing wage garnishment or lawsuits (need legal protection—see how to stop wage garnishment)

Next Steps

Step 1: Get pre-approved by multiple lenders (won’t hurt credit)

Step 2: If consolidation isn’t affordable, calculate consumer proposal savings

Calculate Consumer Proposal →

Step 3: Understand your rights by province

See Provincial Debt Laws →

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Last updated: January 25, 2026
Disclosure: We may earn a commission if you apply through our affiliate links. This doesn’t affect your rate or cost—lenders pay us for referrals. We only recommend lenders we’ve researched and would use ourselves.

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Related Reading

• How to Stop Wage Garnishment in Canada: 5 Legal Ways
• What Is a Consumer Proposal in Canada?