How to Invest in Loans in Canada?
By Yuri Sychov | Published on 24 Sep 2023
Investing in loans can be an attractive option compared to other traditional investment methods. While some loan investment methods, such as P2P lending and investing in loans through the stock market, are relatively straightforward and hassle-free, others, like private lending, can pose more intricate challenges. In this article, we will explore how to invest in loans in Canada and compare different investment opportunities, weighing the risks and rewards of each. So, let’s take a look at the loan investment options available in Canada to give you, as an investor, a comprehensive overview of what possibilities are out there.
Investing in Loans Through P2P Lending Platforms
Investing in loans through Peer-to-Peer (P2P) lending platforms is quickly gaining popularity across Canada. These online marketplaces connect borrowers who need funds and investors searching for competitive interest rates, making it an attractive option to many.
Investors turn to platforms such as P2P lending in pursuit of higher returns than those provided by banks. With the freedom to choose how much risk they are willing to take, according to their desired return on investment, these services offer an attractive option for many. P2P lending offers an advantage over other investing methods by eliminating the need for a middleman. Investors now have direct access where they can either finance an entire loan or just partially fund one for borrowers.
Be aware that while peer-to-peer (P2P) lending can provide higher returns, it also carries risks, as some borrowers may default on their payments. Still, most users report they were able to earn 6%-15% returns annually, depending on the platform and their risk tolerance.
Currently, there are two major P2P lending platforms in Canada: goPeer and Lending Loop. Let’s look at each of them.
goPeer
goPeer, Canada’s peer-to-peer lending platform, provides a unique investment opportunity for those who want to invest in loans. Established in 2019 and based out of Toronto, goPeer has been facilitating personal loans to Canadians ranging from $1K up to $35K with either 36 or 60-month terms. Investors are drawn towards the competitive interest rates between 7% – 31.5%. As of September 2023, the average interest rate for a goPeer Personal Loan was 16.7%. Borrowers must meet certain eligibility criteria, such as an income recommendation of at least $15k/year, no payday loan debt, plus minimum credit score requirements set at 600 points or higher.
| Investor Eligibility Criteria | Minimum Investment | Fees |
| Canadian resident Must hold an active Canadian bank account | $10 | 1,5% annual servicing fee (0,125% monthly will be deducted from loan repayments) |
Lending Loop
Lending Loop, a Toronto-based platform founded in 2014 by Cato Pastoll and Brandon Vlaar, is Canada’s first fully regulated peer-to-peer lending platform focused on small businesses. They have Exempt Market Dealer status and obtained approval from all provinces and territories across the country. Lending Loop’s loans have a typical maturation span of two to four years, with options ranging from three to sixty months. The platform has attracted 12,278 active investors and facilitated $86,866,625 in financing for hundreds of small businesses across Canada. For added convenience and customization possibilities, users can opt into the Auto-Lend feature – either choosing one of the preset plans or creating their own custom plan. Currently, net returns are estimated at 7.3% (Balanced Plan) and 5.6% (Conservative Plan).
| Investor Eligibility Criteria | Minimum Investment | Fees |
| Canadian resident Must hold an active Canadian bank account | $200 | 1,5% annual servicing fee (0,125% monthly will be deducted from loan repayments) |
Investing in Loans as a Private Lender
Becoming a private lender is a more complex way of investing in loans in Canada, and here are the reasons why. You will have to identify trustworthy borrowers, evaluating both their collateral’s worth and accompanying risks. In addition to that, you will have to find a lawyer who is familiar with the intricacies of Canadian lending laws. Considering all the risks involved, this option may not be suitable for investors with limited financial resources.
In fact, Alexis Shahriar Assadi, an expert private lender, recommends starting with at least $50,000 if you want to invest in mortgage loans. However, you can have less money to invest in unsecured loans, but these loans come with a higher degree of risk. For those who don’t know all the intricacies of the private lending and mortgage market, it is better to stick to safer investment options, such as investing in a mortgage fund.
For those with the financial means to invest, private lending can be a lucrative source of income if approached cautiously. However, a successful venture into this arena necessitates deep market knowledge and the ability to assess and mitigate risks effectively.
How to Become a Private Lender in Canada?
First of all, you should check your provincial regulations and requirements related to private lending. Depending on your province, you may require a license or be registered as a mortgage broker. It is always better to consult a professional lawyer, as private lending often entails intricate legal considerations. For your convenience, we’ve compiled a table of private lending requirements in each province:
| Province | Private Lending Requirements |
| Ontario | Private lenders are not subject to regulation, but a license is required for mortgage brokers. |
| Quebec | No license is required if the loan is for a mortgage, but a license is required for mortgage brokers. |
| Nova Scotia | A lender permit is required. |
| New Brunswick | Private lenders are not subject to regulation, but a license is required for mortgage brokers. |
| Manitoba | Private lenders are not subject to regulation, but a license is required for mortgage brokers. |
| British Columbia | No license is needed if you loan out fewer than ten mortgages annually. |
| Prince Edward Island | Private lenders are not subject to regulation, but a license is required for mortgage brokers. |
| Saskatchewan | A license is required. |
| Alberta | Private lenders are not subject to regulation, but mortgage brokers who represent them and borrowers in Alberta must be licensed by the Real Estate Council of Alberta (RECA). |
| Newfoundland and Labrador | Private lenders are not subject to regulation, but a license is required for mortgage brokers. |
When you have clarified the legalities and ensured compliance with provincial laws, you should identify your niche. As a private lender, you have the luxury of tailoring your services and focusing on specific niches within the lending sector. This could be first, second and third mortgages, business loans, unsecured personal loans, asset-backed loans, syndications, or all of the above.
Finally, find a reliable lawyer who is an expert in private lending and mortgage law so they can create thorough loan contracts. Having a strong legal basis is critical for safeguarding your rights and making sure that all deals adhere to Canadian regulations.
[Offer productType=”Loan” api_id=”645e2e321f252a2d29244f28″]Invest in Loans Through the Stock Market
Investing in loans through the stock market is a viable alternative to direct private lending. Instead of taking on the responsibility and risk associated with being an individual lender, you can get exposure to this sector by investing in various financial instruments and securities. Among these financial instruments are bank stocks and Exchange-Traded Funds (ETFs) that invest in Mortgage-Backed Securities (MBS), or bonds.
ETFs are the go-to option for those who want to invest in loans through the stock market, as they offer a combination of flexibility, diversification, and accessibility. Among Canadian ETFs that invest in debt are BMO Aggregate Bond Index ETF (ZAG) and Horizons Canadian Select Universe Bond ETF. Investing in ETFs requires a reliable online brokerage with low fees, a user-friendly platform, and robust research and analysis tools. So here are some of the best online brokerages you can use to invest in loans through the stock market. Alternatively, you can try Hardbacon’s online brokerages comparison tool to find the one that best suits your individual needs and preferences.
Qtrade
Qtrade is a top-notch online investment platform in Canada, offering the convenience of self-directed investing through Qtrade Direct Investing. It offers an expansive selection of investment options: stocks, ETFs, mutual funds, bonds and more, to ensure investors have access to all possible choices when it comes time to grow their portfolios.
Qtrade’s ETF Centre is the go-to destination for investors looking to make their mark in exchange-traded funds. It provides comprehensive summaries of top and bottom-performing ETFs from Canadian and U.S. exchanges and numerous tools and resources that can assist you in finding the right fit.
Questrade
Questrade is the go-to brokerage platform in Canada for savvy investors looking to maximize their investments. Not only does it provide a self-directed approach that allows users to purchase any North American listed ETF, but its commission-free structure makes investing highly cost-effective. This combination of flexibility and affordability makes Questrade an ideal choice for those seeking to build diverse portfolios without spending a fortune.
With a range of trading platforms tailored to meet each user’s individual needs, Questrade makes it easy to buy ETFs. To get started, simply create an account and deposit funds. Then, you can use the platform to search out your desired ETFs. There are also some great features like real-time rebalancing and multiple types of accounts available, such as TFSA, RRSP, RESP or Cash.
Wealthsimple
Wealthsimple is a renowned Canadian investment platform that provides two distinct methods to invest in Exchange-Traded Funds (ETFs). Wealthsimple Invest — for those who desire an automated portfolio management system, the manager can purchase and sell ETFs on your behalf. If you prefer taking matters into your own hands, then try Wealthsimple Trade; this self-directed platform gives you direct control over buying and selling ETFs.
With Wealthsimple, you have the opportunity to open RRSPs, TFSA and non-registered investment accounts. You can invest in some of Canada’s best ETFs as well as those that focus on either Canadian or U.S. markets. The platform is available on all devices, including web interfaces, tablets, and smartphones, which makes it rather convenient for Canadian users so that you can invest in loans through the stock market on the go.
