What Loan is Right for YOU?

Jeff Schwartz, Executive Director of Consolidated Credit Counselling Services of Canada, says he and his team deal with various financial issues.

“People reach out when they’re struggling with respect to their debts,” says Schwartz. “We recommend realistic solutions to help people achieve their financial goals.” As part of the counselling service, Schwartz and his team take time to explain the difference in loans, and to advise clients on the various risks and benefits of each.

The two biggest categories of money-lending are loans and credits. Loans are divided into two sub-categories: secured installment loans, which are usually provided by banks; and unsecured installment loans, which can be through a bank or from other financial institutions, like independent lenders. The first is predicated on the idea that the loan is held against collateral, usually a house (like a mortgage) or a car (like a car payment loan). Secured bank loans usually have a lower interest rate, and allow the client to pay back a set amount every month. The certainty and predictability make secured loans a safer choice, but may not be best for everyone. 

“Some loans have to be verified beforehand,” says Schwartz. This usually involves a credit check, which Schwartz says can be tricky, especially for new Canadians. “Having no credit history is almost as bad as having bad credit. Some loans don’t require verification, but those typically have higher interest rates.”

In cases like these, clients may choose to get an unsecured installment loan instead, which are easier to obtain. These types of loans are usually considered short-term, in comparison with installment loans like mortgages, which can be paid back over the course of decades, but this type of high-risk lending is what accounts for their higher interest rates.

Another alternative is opting for a line of credit, which offers flexible payment options and does not accrue interest on the full loan amount. Instead of receiving a lump sum, lines of credit operate on what is commonly referred to as “revolving credit,” meaning a client can borrow any portion of the loan again once it has been repaid. Their flexibility makes them attractive to clients, as unlike installment loans, lines of credit accrue interest only on what portion of the loan the client uses. Like unsecured installment loans, lines of credit carry higher interest rates due to their uncertainty of payment and are more difficult to obtain.

A simpler solution might be applying for a secured credit card. By putting down a deposit, the client in effect “secures” the credit card, without worrying about a credit check. Providing the flexibility of a line of credit, a secured credit card is also a great way to build up low or non-existing credit.

Whichever option a client selects, Schwartz says it’s important to paint a clear picture of your financial life. “It’s all about deciding what you want the loan for.” Whatever your situation and whatever your needs, there’s a financial solution that’s just right for you, and plenty of sources to help guide you.