What Loan is Right for You?

If you find yourself in financial dire straits, often the simplest solution is to take out a loan. But the exact type of loan best for your situation may be hard to figure out, and finding the right source of financial advice can be a hassle.

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

“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 loans are secured installment loans, which are usually provided by banks; and unsecured installment loans, which can also be acquired 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 the exact same amount every month. The certainty and predictability make secured loans a safer choice, but they may not be best for everyone.

“Bank 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.”

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. Unsecured loans also carry a higher interest rate, due to the uncertainty of payments and the fact that there is no collateral involved. They do, however, carry penalties for missed payments.

For those who struggle with no or bad credit but still want the security and stability of a secured installment loan, Schwartz recommends building credit using a secured credit card. By putting down a deposit as the security, clients can acquire this type of credit card and build up their credit fairly quickly, opening themselves up to the possibility of new and different loans that can offer less financial risk.

Whatever loan a client selects, Schwartz says its 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.