Many people automatically equate alternative lenders to payday lenders and therefore don’t consider them as a legitimate financing solution. The most common assumption is that alternative lenders are a last resort, high interest scam, when in fact, alternative lending refers to any lending done outside of the traditional bank system; and for some, it’s actually a better solution. 

It has been ingrained in people for so long that the bank is where you go for all your financial needs. Need a loan? Go to the bank. Need a mortgage? Go to the bank. Need a credit card? Go to the bank. But as the lending landscape shifts, the banks are not the only solution. 

However, due to poor, and often false, misconceptions about alternative lending, many Canadians likely don’t realize they have options outside of the traditional banking system. While it may not be the solution for everyone, it is important to separate fact from fiction when it comes to alternative lending. 

Myth #1: Only desperate people or people with bad credit use alternative lending 

Alternative lending can be a great solution for anyone, regardless of credit score or financial situation. As with traditional lending, your credit score will impact the rates and terms you are offered, but alternative lenders can be a beneficial resource for those with good credit as well. 

Working with an alternative lender can give more flexibility and broaden the approval criteria for the borrower. An individual may choose this route if they are self-employed and are working to grow their business. Additionally, alternative lenders can often provide more flexible repayment terms if you need more time to pay off the loan. 

Myth #2: There is no limit on the interest they can charge 

That is incorrect! No lender in Canada is allowed to charge more than 60% interest on a loan. And while 60% is high, it cannot exceed that, and often won’t even reach that percentage. You can expect most lenders to cap out around 45% as the maximum interest charged, and often only for those in a very poor credit situation. 

Myth #3: You will get stuck in a lending cycle 

The only commitment you are making by working with an alternative lender is the duration of your loan term. A lender may want to offer you a new loan or financial product at the completion of your loan, but you are not required to take anything you don’t need. However, multiple loan products with a lender may help improve your credit score, which leads us to our next point. 

Myth #4: It hurts your credit score 

Nope, nope, nope! For many people, it’s actually quite the opposite. Alternative lenders often report your positive repayments to the credit bureau more frequently than a traditional lender, allowing you to add to your credit history. The more you can prove you’re making complete payments on time, the better chance you stand of improving your overall credit score. These alternative lenders are invested in helping their customers improve their credit for overall financial health, and to also decrease the risk of lending to you in the future. Without alternative lenders, there is little opportunity for credit challenged individuals to improve their situation. 

Some alternative lenders also offer prepaid credit cards that allow you the functionality of a credit card, without the risk of taking on more debt. You load the funds onto your card that you can afford to spend and as you make purchases and payments they are reported to the bureau. Your credit history is impacted in a positive way, and you can’t run up a bill when you don’t have the ability to spend more than you put in. 

Myth #5: Alternative lenders are “shady”

As the alternative lending landscape becomes more saturated in Canada, the competition for borrowers’ business increases. And in this day of technology and Google reviews at our fingertips, it is in a lender’s best interest to stay above board and not risk taking themselves out of the game. Accountability, transparency and honesty are even more valued among alternative lenders to not go out of business. Not to mention, reputable alternative lenders are still regulated at the provincial level and must adhere to legal and compliance standards. 

Regardless of your lending scenario, it is always important to do your due diligence before choosing a lender to work with. Many alternative lenders are accredited through the Better Business Bureau, so it shouldn’t take long to confirm the legitimacy of a lender offering you money. Using a loan search engine such as LoanConnect is also a good way to confirm you are working with reputable lenders as it’s in the best interest of all parties involved to meet all required regulations. 

At the end of the day, you need to feel confident and comfortable with whatever loan you choose to take out, whether it be from a bank or an alternative lender. Never borrow beyond your means, and don’t sign anything without reading the fine print. But if you are in need of a loan, don’t be afraid to look beyond traditional lending. It could do you more good than you realize. 


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