As no loan fits all kinds of transactions, knowing which types of loans would suit you and your specific needs is highly important. If you are unfamiliar with the rules and regulations surrounding the types of loans in Canada, doing a bit of research before diving in and taking the plunge will save you from all confusion. Below are some details of the most common types of loans in Canada.
Mortgage loans are typically used to finance significant purchases like a home, a business, or industrial machinery. Major banks usually offer this type of loan requiring a rigorous application process which necessitates a lot of information. The terms are often long with amortization periods ranging from 10-25 years. Highly competitive rates are normal for mortgage loans because banks stand to gain a long-term continuous income from these types of loans
Short-term loans are usually given for amounts ranging from $500 to $20,000. Applying for short-terms is easy because they are available from a variety of lenders. Terms of payment of short-term loans are usually between 12 and 24 months.
Although you may request the longest term possible to minimize your monthly payments, paying off the loan sooner rather than later is encouraged as this will help you improve your overall credit score.
Cash Loans & Advances
Cash loans are usually available and easy to obtain for smaller amounts. Credit card advances belong to this kind of loan. Know that if you take out a cash advance with your credit card, the interest will begin to accrue the day you borrow, rather than the following month, as with many other sorts of loans. Keep in mind that the interest rates on credit cards and cash advances are among the highest of any sort of loan. It’s easy to forget to budget for interest when taking out a cash loan, so make sure you have the finances to pay it off before taking out one. If you’re prone to taking out impulsive cash loans or credit card advances, it’s all too easy to become engulfed in debt and interest payments.
In secured loans, a collateral, such as your house or your car is necessary. The purpose of such is to allow the lender to cover a loss if the debt is not repaid. Mortgages, major lines of credit, and personal loans can all be secured. The application procedure for a secured loan is often lengthy and complicated to allow the lender to evaluate the collateral first before the approval and release of the loan.
The lower interest rates on secured loans make them appealing. However, you have to be wary of secured loans or you’ll face repossession. Make sure to manage your budget to guarantee payment of your secured loan to avoid losing the security you provided.
Unsecured loans do not require collateral and are frequently granted to people with good credit histories. This type of loan typically has higher interest rates because the lender assumes a greater risk of the debt not being repaid.
Unsecured loans may include car loans, smaller lines of credit, and personal loans. The application process of unsecured loans is generally simple and uncomplicated but to qualify for one, you must have a consistent income and no previous loan defaults.
Having an improved knowledge and better understanding of the different kinds of loans in Canada will help you make an informed decision and select the best choice of loan that will cater to your needs.