What's changed because of the coronavirus pandemic?
If you need the money right now, a loan may be your only option.
If you don't need the money immediately and can afford to wait a little, consider saving more by cutting down your expenses / getting some extra income, or finding a cheaper alternative. You may be able to reduce the size of your loan or avoid borrowing entirely.
If you know you'll need to borrow in the future, plan ahead and shop around - find the best deals. You may not have this luxury if you're caught by surprise.
Is it something you need or something you want?
There's 'good' debt and there's 'bad' debt.
Don't borrow money to make impulsive purchases, like an expensive car or the latest designer purse. Good reasons to borrow include:
'Bad' debt can also mean expensive debt.
You'll need to check with lenders if they are willing to lend you the amount you need.
Lenders will only approve you for as much debt as they think you're able to 'service' (which means to make regular payments as scheduled until you repay the entire amount).
If a lender isn't willing to lend you enough / any money, consider asking somebody to co-sign your loan. If you fail to make payments, they'll have to make them for you.
If you need cash to purchase a specific item, consider a personal (also called 'term") loan.
Test your knowledge - take a FinStart quiz!
Should you lease or borrow to finance the purchase of a vehicle?
Should you rent or use a mortgage loan to finance the purchase / construction of a home?
They're multiple choice - always choose the most appropriate answer.
Click on the diagram to find out how loans work.
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What are your options if you fall into debt and it becomes overwhelming?
If you're a student, you may qualify for special bank and government student loans, as well as scholarships / bursaries / grants.
Click on the icon to join Xork and sprint through loans. It should take you about 10 minutes.
If you don't know exactly how much you need, or when you need it / when you'll repay it, a line of credit may suit your needs.
Xork was recently admitted to a college in the Zanthar galaxy. He isn’t concerned about the cost. “I’ll just..."
Having steady income and good credit history will help you secure a more favorable loan.
No lenders expect students to have either.
Thinking about borrowing money?
If you have student debt, or need to borrow money,
learn how to deal with it responsibly. You'll have to pay it back.
A loan (sometimes referred to as 'credit') is borrowed money.
Most loans / lenders have you repay the principal (what you borrowed) in small regular payments.
You can can borrow money from most financial institutions (like banks, credit unions, and independent loan providers) by signing a loan contract.
If you have Canada Student Loans, you won’t have to pay any interest for six months. You’ll need to check whether this also applies to your provincial student loans.
If you borrowed money from a bank and feel you may not be able to make interest / principal payments when due, contact them.
Lenders are changing their procedures. For example, you may be able to apply and complete loan transactions, even mortgages, remotely. Even at traditional (as oppoed to online-only) institututions, bankers are available by phone or video. In provinces where electronic signatures are permitted, documents can be exchanged and signed electronically.
If you need to borrow money, make sure to shop around - check the interest rate on loans with a few banks. While, in general, the level of interest rates has fallen, some banks have taken away promotional rates - which means the cost of borrowing may actually have risen.
The interest rate banks charge depends on how credit-worthy you are (based on your credit history), as well as current economic / market conditions. The lower the interest rate, the less your loan will cost.
Lenders compete with one another for your business by offering lower interest rates or more favourable payment terms on loans. You should check with a few lenders and compare their offers before signing any loan contract - especially for larger loans.
Interest can be fixed or variable.
You can lower the cost of borrowing by giving the bank 'security'. This means pledging an item you own, like your car / house / investment portfolio against the loan. If you stop making payments, your lender will eventually repossess the pledged item. There is no such risk with an unsecured loan. As a result, unsecured loans are more expensive than secured loans.
This is the cost of borrowing money.
Term of the loan
This is the amount of time, usually in years, over which you agreed to pay back the entire principal.
For most loans, you'll have to start making interest / principal payments immediately.
You and your lender will agree on how often you'll make interest / principal payments.