A Guide to Loans in Canada

Managing your finances is no easy feat, especially after COVID-19. Millions of people have lost their jobs, accumulated medical bills, and watched life, as they know it, come to a standstill. It’s no surprise that the demand for loans has increased significantly, and many people rely on external help to alleviate their financial troubles.

Loans aren’t a universal solution, which becomes apparent when you start looking for one. If you’re in Canada, there are various loans you can choose from, making it essential to do your research beforehand. Navigating the process of applying for a loan can quickly become overwhelming, and you might be confused about where to start. Keep reading, as we look at several types of loans and why they’re important, so you can figure out which one will best suit your needs.

Types of Loans

Now that you have a general idea of what a loan entails let’s look at some different kinds you can avail yourself in Canada.

1.   Mortgage Loans

A mortgage loan is issued when you need to make a massive purchase like a business, house, or industrial equipment. The contract terms are set by giving the borrower a time ranging from 10 to 25 years to pay back the loan.

Due to their magnitude, major banks offer these loans and have extensive applications you need to fill out. Banks aim to receive a steady, long-term income from mortgage loans and put highly competitive rates on them. According to statistics, Canadian household mortgage debt rose by 0.5% in January 2022, reaching around $1966 billion.

2.   Line of Credit Loans

You can use a line of credit loan to pay for certain expenses, for example, if you have incurred some additional, unexpected expenses while on vacation. Since there isn’t a limit on how much money you can take out, you can borrow whatever amount you deem fit. Unfortunately, not everyone is eligible for a credit loan because it depends on your credit score. Poor credit history will result in lenders refusing to give you the loan. Compared to payday loans, these loans have a lower interest rate.

3.   Payday Loans

Payday loans are a kind of short-term loan, lasting anywhere between 15 to 30 days. You can receive a maximum amount of $1500, and the payment must be made by the date of your next paycheck, meaning you need to pay the amount you borrowed quickly. If you cannot pay back the loan timely, you can either go into overdraft on your bank account or take out an additional payday loan until your next paycheck.

For every $100 borrowed, you are likely to pay $25 more in return because the interest rates are high. However, you can search for cheaper payday loan options, such as direct deposits or pre-determined payments that allow you to obtain interest rate discounts. Payday loans are also convenient because loan companies like My Canada Payday allow you to file an application online and then transfer the money into your account within a few minutes.

4.   Secured Loans

If you have bad credit, secured loans are the way to go. These loans are given to people who haven’t been able to build credit successfully, and so their interest rates tend to be high. Not only do you have to pay more, but you also have to give something up as collateral in the range of $5,000 to $25,000.

Receiving a secured loan requires you to be at least 18 years of age, but if you can prove that you’re capable of handling your financial matters, your application might be approved. The time in which you have to pay back this loan depends on the lender.

5.   Unsecured Loans

Unlike secured loans, unsecured loans don’t need you to submit any collateral and are available for people with good credit history at low-interest rates. Most people apply for this loan in emergencies or when they need extra cash for something specific, for example, a medical procedure or home renovation.

The amount you can borrow directly corresponds to your employment status and income. Some specific types like chattel mortgages let you obtain a more significant amount because lenders loan a fraction of the property they can take back in the case of non-payment.

6.   Student Loans

If you’re a university student struggling to make ends meet, you can take some burden off your shoulders by taking out student loans. These loans differ from other borrowing resources because you need to present proof of your enrollment in school or a recent graduation certificate from one. You borrow the necessary amount based on your tuition fees and financial situation.

Interest rate is not charged on student loans because they don’t use credit scores to determine whether you’ll pay back the money or not. Students are supposed to pay back the loans via direct cash withdrawal from their bank account or by paying it at the financial aid office of their university.

7.   Auto Loans

With auto loans, you can purchase a vehicle conveniently since paying upfront for one takes a considerable chunk out of your wallet. These loans usually have three to eight-year contract terms with payments made every month. If you are unable to pay the loan back on time, your car acts as collateral, and the lender has the right to take hold of it and sell it. Your local car dealership can help you find the best auto loans, so don’t hesitate to reach out to them for help.

Endnote

Loans can save you in the face of many predicaments if you have the means to pay them back timely. There are many things to consider when it comes to loans, including why you need the money and which loan will benefit you the most in such a situation.

When you familiarize yourself with the various loans offered in your country, you will be able to make informed decisions regarding borrowing money and implement strategies that’ll allow you to pay off your debt as soon as possible. It’s recommended that you compare the interest rates and terms offered by different lenders on the loan you want to avail of so you can get the best deal possible.

Photo by Daniel Thomas on Unsplash