Almost everyone takes a loan at some point in their lives, whether it be to pay for school, buy a new car or acquire your first home. Debt is a part of our everyday lives and is a necessary tool for most to finance some of life’s larger purchases.
While most of us use loans or other forms of debt at some point, all loans definitely aren’t created equal, and which company you go with can have a significant impact on getting favourable terms and low-interest rates. On this page, we’ve provided an overview of some of the best loan providers in Canada, as well as more information on how loans work.
How Loans Work In Canada
A loan is the name given to the lending of money from an organization to an individual or another organization. This transaction results in the borrower being obliged to pay interest on the amount loaned until the original amount is repaid. Loans come in different forms for a variety of purposes and most people will, at some point in their lives, take out some form of loan.
The Canadian loan market generally gives borrowers a number of choices of who to take a loan out with. Most companies are in direct competition with each other. As such, buyers may not notice much of a difference in potential offerings.
Despite the large amount of paperwork often associated with them, loans are generally a pretty simple concept.
Qualifying For A Loan – To qualify for a loan, you must give providers honest and accurate data which lets them know that you’ll be able to pay back the loan and interest in full. In Canada, having just over a third of your income devoted to paying debts is considered healthy. Any higher than that and you could find yourself struggling to get a loan.
Loan Payments – Repaying your loan on time and in full is vital. Failure to do so is likely to harm your credit rating and make any further acquisition of loans much more challenging. Repayment rates are agreed before you receive the loan and include the interest you’ve agreed to pay. If you make a late payment, you may find that you’re charged late payment fees.
Interest On Loans – Interest rates are the percentage that you’re charged which is based on the total amount you borrow. Interest is an important part of any loan, and a minor change can have a huge impact on the amount you pay.
Instalment vs. Revolving Credit – Instalment loans are loans which require the borrower to pay fixed payments at scheduled intervals until the loan and its interest are paid in full. Revolving credit is renewed as the debt is paid. The most common example of this type of credit are credit cards.
Popular Types of Loans
There are many different types of loan you may encounter in your life. Some of the most popular types are listed below.
Car Loan – A car loan helps people to pay for a car that they may otherwise be unable to afford. To get a car loan in Canada, you generally have three options. You can apply via a bank if you have a high enough credit score. Most people get car loans via dealership or online service providers. A car loan is required to be paid in instalments until the outstanding balance is fully paid off.
Student Loan – The Canada Student Loan Program is responsible for administering loans for people pursuing post-secondary education in Canada. Each province and territory have a variety of loans that can be accessed in addition to the federal loans.
Personal Loan – Personal loans, also known as consumer loans, are loans that people use to fund their lifestyle or expenditures. People apply for these loans for all manner of reasons and there’s generally no restrictions on what they are spent on.
Business Loan – Business loans are giving to businesses to help them improve the way in which they carry out operations. This kind of loan is generally used to purchase land or buildings or purchase new equipment or materials.
Line of Credit – A line of credit loan lets you borrow money up to a pre-agreed limit with your provider. You can use as much or as little of the loan amount as you need, and it doesn’t have to be disclosed what you spend it on.
Can I get a loan with bad credit?
Yes, there are all manner of companies that specialize in helping people with bad credit scores to secure a loan.
Can I get a loan if I am self-employed?
Yes, many providers offer loans to self-employed people. It’s simply a matter of finding one that works with self-employed individuals. Generally the banks want to see 2 years of returns for your business as well as your personal income tax returns.
How much will my loan repayments be?
This depends on many factors including the loan amount and the length of your repayment plan. The longer the term of the loans (example 5 years versus 10 years) the lower the monthly payment, but interest cost increases significantly.
How can I pay off a loan as fast as possible?
Simply stick to your repayment plan and avoid paying late. Some providers will let you make two payments per month which will help you clear your outstanding debt even faster.
How are interest rates decided?
Economic factors, such as inflation rate, policy interest rate, and prime rate influence interest rates. Also, individual factors like your credit score and the loan term that you choose have an impact on your quoted interest rate.
If I don’t pay it back, will my credit score suffer?
Yes, if you miss payments or don’t pay at all, it will have a negative impact on your credit score and could make securing credit in the future a much more challenging task.