Getting a Personal Loan in Canada
You've found yourself up to your eyeballs in debt for whatever reason or you just need to get a loan to make your life easier. But always remember that any loan you get will affect your credit, so one thing to do is ask yourself some questions before you even get yourself started, such as:
- Can I get this item by just saving a few dollars a month? It wouldn't be proper for you to want to buy a new HDTV for $1200 and take out a loan when you can save $25 a week and pay cash for it in a year?
- What kind of service fees are charged?
- Will the interest rate remain constant for the life of the loan? You might realise too late that the interest rate is not only variable but jumps out of control.
- Will you be able to afford the payments as part of your budget? Remember that if it's a cash emergency, that you will be paying off more in the long term to cover short term expenses.
Once you ask these questions, the next thing you need to know is simply whether you are getting a fixed or variable rate loan. Whichever you choose to get, always remember that important information must be given to you per law. Even though you can't really say as a defence that you never got this information, credible sources will give you the following:
For all fixed interest loans, you must be provided the following information. This will either be on the front of your agreement or on a separate paper given to you:
- Amount loaned -- The amount you will be borrowing
- Annual Interest Rate -- THe amount of interest that will be charged per annum.
- Annual Percentage Rate (APR) -- This differs from the annual interest rate because it must include all fees and service charges imposed on the loan.
- Term -- the life of the loan, in years.
- Date of Advance -- this is the date that the banks will start charging you interest.
- Payments -- how much your monthly payments will be, and when the payments are due to the bank.
- Amortization Period -- how long it will take if all payments are made on time to pay off the loan.
- Other Fees -- any other fees that may be charged, including an insufficient funds fee.
If the loan is variable, the same information must be provided, but one additional item must be given. Specifically, how the rate is determined.
Variable rate loans must also provide you with a disclosure form telling you the current rate plus what your balance will be at the beginning and end of the statement period. They also must provide you with your new payment rate. If the rate is a fixed payment loan, then they must also provide two other things.
- the "trigger rate", at which your payments wouldn't cover interest at all and
- a notice that if the interest rate goes up, then how long it will take with the new payments. Yes, you might have to write cheques for a longer period of time.
Personal loans can be secured or unsecured. Always remember that a secured loan will have a lower interest rate but require something of value to be put up as a security. if you fail to make the payments, the bank can repossess the item you put up as collateral. An unsecured loan is simply one without collateral.
Personal loans generally have a higher interest rate than a mortgage but has a lower interest rate than most credit cards, unless your credit is near spotless, and even in those cases, a personal loan may be a better option for you because of flexibility with the loan.
Lastly, remember that a personal loan is not something you just "jump into" with the first offer you see on the TV. Many companies out there are ready to just take your money or charge you predatory interest rates. Always check the fine print or go to a reputable institution first to make sure you're getting the best deal. While an interest rate reduction of 1/4% may not sound like much, it can add up to thousands of dollars during the life of the loan.
If you have a complaint or an banque is not playing by the rules, be sure to file a complaint with the Financial Consumer Agency of Canada, and give as many specifics as you can remember. It's your money -- if you have to take a loan, be sure that you're getting the best deal possible. A personal loan shouldn't be a death sentence for your finances.