Demystifying Loans

Loans can be a complex financial mine field to navigate. With such a variety of credit now available it can be difficult to see which option would be best for you. At some point in life, we may all need a loan, whether to help us get a new home or to consolidate our debts, there are literally hundreds of reasons that finance can help us live our lives the way that we want to.

However, with the sheer variety of loans available today, many people find it very difficult to understand all the interest rates, terms, conditions and even which loan serves which purpose. So to help you out, here is some of the main forms of loan financing explained so that you can make sure that you are getting the right plan for your personal circumstances.

So, before we go into detail about the loans, there is one thing that will help the process run smoother: Get a copy of your credit score. This way you will know where you sit financially and will help you make a decision as to which loan you know you will be approved for.

Personal Loans

Personal loans are a very popular form of financing and are available from the majority of banks. This type of loan is so often sought as it can be used for almost anything, such as a new car, home improvements and debt consolidation to name a few. In general, personal loans are unsecured loans, with borrowing limits anywhere from hundreds to thousands of dollars.

The main things to remember when considering taking out a personal loan is that you will need proof of your income, you must consider that unsecured loans if not paid on time can incur large fees and you will only be approved if you have a good credit score. Personal loans are great for individuals who want a loan for a couple of years to help to purchase necessary things.

Payday Loans

Payday or short term loans, have become a common option for short term financing of late due to how much they help in period of financial emergency. If you simply search for online loan + Toronto, you will see how many options are available. This form of financing is often the perfect choice when dealing with a crisis such as emergency medical payments or an unexpected bill that you just can’t pay. They help by giving you the funds to pay for the emergency and also avoid late payment fees from the hospitals or utility company.

However, there are some things to consider before taking out a short term loan. Firstly you must make sure that you are taking out this loan to cover a period of crisis as they shouldn’t be used as a long term finance option. Secondly, make sure you know the APR interest rate up front as you will be repaying the amount borrowed with the interest added on.

Credit cards

Now you may question why these have been added to the list, but in essence they are just another form of loan. Credit cards are an attractive option for those of us that need to make payments for goods, in shops or online, as they are accepted almost everywhere. Particularly useful if you are a small business owner or you are new to loans as they are so easy to manage and use, you will be able to see how you are using them through your statements, something that a personal loan doesn’t offer you.

Credit cards are also being discussed at depth in the media at the moment as they are looking to change some of the tax charges, CBC recently reported that:

“Mostly our politicians are talking about and investigating the fees charged to merchants every time a consumer swipes their card.”

I would wait to see what the outcomes of such investigations are and how they could affect your use of you credit card.

With credit cards, it is worth considering how much you can afford to pay back in full each month as they are best used in this way to cut out the interest fees and also look for lenders that offer rewards with the cards, such as air miles or cash back options.

Whatever loan you decided is best for you, always remember to read the small print before you sign up to any credit. When it comes to your financial well-being, be sure to do your research before making big decisions.