The COVID-19 pandemic brought life as we know it to a standstill, with many individuals suffering both personal and financial losses. As the world slowly regains its footing of normalcy, you might have realized that you want to pursue your dreams of opening a business or building a house. One way to achieve this is by taking out a loan, especially if money is tight.
A loan is a certain amount of money borrowed from a financial institution like an online lender, credit union, or bank that is paid back with interest upon a predetermined date. According to statistics, the interest rate on loans in Canada has dropped in the past few years, meaning now’s the right time to avail of one if required. There are different types of loans you can apply for in the country, so keep reading as we break down several of them:
1. Mortgage Loans
As one of Canada’s most common loan types, mortgage loans are closed-ended and secure. However, you need to pay back your debt on time to avoid losing your home. Lenders will want to see your income, credit score, and report to determine whether you are eligible to receive help.
The interest rate you’re given is also dependent on the homeowner’s insurance, the cost of local property taxes, and any repairs to be made in the new house. You should note that Canada reassesses mortgages after every five years, bringing in new mortgage rates for the future. Be sure to keep this in mind when applying for a mortgage loan.
2. Personal Loans
Personal loans come in two categories: secured and unsecured. They are closed-end loans used to finance big expenses and purchases, such as construction, significant life events, college savings, unexpected medical bills, and home repairs. Let’s take a look at the two different types:
- You can easily obtain a secured personal loan due to the collateral support terms and conditions. The lending company can seize your property, like your home or car, if you fail to pay them timely.
- In contrast, an unsecured loan is much riskier, requiring nothing but the borrower’s signature that assures the debt will be paid off. These loans are harder to get because they need a good credit score and charge higher interest rates.
Personal loan terms can last anywhere from one to seven years, based on your agreement with the lender. The loan terms and your credit score will determine the interest rate offered to you. Still, some companies will give you a fixed interest rate, and you will have to do your research to find them.
3. Payday Loans
Payday loans are short-term loans, allowing you to borrow up to $1,500 for a duration ranging from a month to two weeks. You are expected to pay them back with your next paycheque or through a direct bank withdrawal. These are some of the most expensive loan types in Canada and have an annual percentage rate that can go up to 400% to 500% if you don’t repay your debt.
Unless you are confident you can pay it back in the specified time, you will find yourself in immense financial trouble and might even need to take out another loan to pay it off. Payday loans are the easiest to obtain since only your current income is considered for eligibility. If you have a bad credit history, this can be an excellent option. Additionally, the fund transfer takes place within one to two hours and is an excellent fast financing option. You can check out online options like My Canada Pay for convenience and see the terms they offer.
4. Student Loans
Attending college or university isn’t cheap, and most students look for external help unless they’re financially well-supported. Fortunately, you can opt for a student loan to support your education and pay it off after you’ve graduated. Keep in mind that when you’re applying for a student loan, you will likely need a co-signer and ensure that you read and understand all the rules in the fine print. You can obtain the following two kinds of student loans in Canada:
- Government-sponsored loans: This type of loan is tax-deductible and is available in various Canadian provinces. To be eligible for a government-sponsored student loan, you must be enrolled in a designated education institution, meet the financial need requirements, and be a Canadian resident.
- Private loans: Unlike the former choice, a private loan is not tax-deductible, and its interest rates might differ significantly. The student is responsible for taking the loan and all the added-up interest.
Whether you need money to start a new business or pay for college, a loan can be your best friend if you make a structured repayment plan and follow the conditions set by the lender. The world of borrowing and lending is vast, and there is bound to be a loan type that will meet your specific financial needs. We recommend you do your research before applying for one so that you can avoid any mishaps or burdens in the future.