It’s a sad reality that many people in Canada struggle to afford basic necessities such as food, rent, healthcare, and education. When these expenses are too much for a family to handle on their own, they may take out a personal loan. However, what seems like an easy solution is actually quite complicated and doesn’t always provide the promised benefits or results.
Here we will discuss how personal loans work with examples and evidence of real borrowers who got themselves into debt through financing car purchases, medical bills payments for elderly parents and grandparents who needed expensive surgeries or hospital stays, big purchases such as a first home mortgage that put them into what seemed like an enormous amount of debt until everything fell into place shortly after.
We’ll also cover how to get a loan without paying the extra fees and interest rates that these lenders charge.
Let’s start with an example of someone who was struggling to pay down $1,700 each month for his auto loan. He had been making his payments on time, but he had no clue that many lenders offer even better financing deals. If he had done some research, he might have realized that there were lenders willing to give him an extra $170 per month in financing for just one year while still paying well below the national average for car loan interest rates.
Just six months later, he would have saved more than $1,900 in interest payments and would have had thousands of dollars left over to pay down his loans. But he didn’t know about this program at the time.
How do Personal Loans work?
Personal loans work like other unsecured loans, but they come with a higher interest rate as compared to secured loans or credit cards. This is because you’re taking on more risk by lending money directly to a person rather than lending money against an asset (like your home). In order to protect themselves from default, lenders typically charge higher interest rates for this type of loan.
As opposed to a secured loan, a personal loan is unsecured. Unsecured loans have no collateral or other assets that are capable of being used to secure the loan in the event of default. In this sense, an unsecured personal loan is a very risky investment for a lender. In order for an unsecured lender to feel safe enough to lend you money, they typically charge higher interest rates than those offered on secured loans.
However, this doesn’t mean that you will always pay higher interest rates when you take out a personal loan. Sometimes the best loans can be found online at websites that offer low interest rates and no credit check requirements. Instead of searching for lenders that will give you the best rates, it’s more important to find ones that are open and willing to work with you. After all, what good is a low interest rate if the lender refuses to consider your application because they don’t like the way your credit looks?
Personal loans can be used for anything from buying a new car to making home improvements, and the borrower usually has several repayment options. Some loans come with fixed interest rates that will remain constant over the life of the loan, while others can be repaid over time or with a combination of both.
Purchasing a car or another major item with a loan is a popular way for people to get themselves into lots of debt. According to the Federal Reserve, approximately $43 billion worth of personal loans was issued in the second quarter of 2012. Personal loans also make up half of credit card balances.
According to the American Financial Services Association, more than 80 percent of personal loan borrowers are considered prime credit-quality borrowers. This means that they have excellent credit scores, and lenders typically approve them for more expensive types of unsecured loans than bad credit borrowers.
While the cost of most unsecured loans is based on the borrower’s credit score, personal loans are different because they are based on a fixed rate that remains constant over time. This can make them a more attractive option to people who are interested in minimizing interest costs, but don’t often qualify for lower interest rates.
What Are Personal Loans Used For?
Personal loans can be used for almost anything, and borrowers have several repayment options. They can be repaid over time or with a combination of both. The most common types of personal loans are those that require low monthly payments but offer fixed interest rates.
With the average cost of owning a car in the United States costing approximately $8,000 over five years, many people take out auto loans to pay for the majority of their vehicle’s costs. In fact, more than 90 percent of individuals who use personal loans buy cars.
Personal loans are often used to finance car purchases and financing by car dealers is also growing in popularity as more people look to purchase new and used vehicles without having to make a large down payment.
Medical Expenses and Health Insurance Costs
One of the most common uses for personal loans is to help pay for medical expenses for an elderly parent or grandparent or other family members who need expensive medical care. Medical bills are some of the most expensive and life-altering bills that people face because they are so unpredictable in their cost.
Personal loans may also be used to pay for health insurance premiums or other insurance plans. Often, people who cancel their insurance plan discover that they have to pay a hefty fee to regain coverage, and personal loans can help defer these costs until you find another solution.
Debt Consolidation Loans
Another common use for personal loans is debt consolidation. Debt consolidation is when you combine all of your debts into a single loan that has a lower interest rate than any of your other loans. This can help you save money on interest payments and allow you to repay the loan faster, which also results in saving money on interest payments.
Debt consolidation loans are typically unsecured personal loans that require low, fixed monthly payments over the life of the loan. You may end up saving a substantial amount of money by consolidating multiple high-interest debts into one super-low interest debt.
Home Renovations and Repairs
Home renovations and repairs are another common use for personal loan. Improvements such as installing a new roof and painting your house can be more expensive than you may realize. This is especially true if you don’t have a lot of money in the bank.
People who take out personal loans to cover their home renovations or repairs often find that the cost of financing stays relatively low compared to what they were paying on their credit card debt or other high-interest loans. Buying furniture, appliances, and other home improvements can also help pay off your balance faster and save money in interest payments.
Personal Loan vs Credit Card Debt
The interest rates on most credit cards range from 15-20%+ whereas personal loans offer fixed rates between 5-15%, depending on the lender. Many credit cards also have annual fees and higher-than-average minimum payments.
Compare Personal Loan Rates
Personal loans are typically a better alternative to credit card debt if you want to save money on interest rates and are good at paying off your debts on time. However, if you struggle with making your monthly minimum payments, you should find a credit counselor or bankruptcy lawyer to help you instead of taking out another loan. Personal loans offer a lot of flexibility when it comes to the number of payments, payment dates, payment amounts, and payment terms, which can be a good alternative to high-interest credit card debt.
How to Get a Personal Loan?
Different lenders use different criteria to underwrite their loans, but most lenders will evaluate your credit score, income, and ability to repay the loan. You can apply directly with the lender or apply through a third-party site such as Lending Tree. If you have bad credit you should apply through a third-party site because they typically offer lower interest rates than direct lender sites. This is how you will be able to apply for a personal loan. Well, you can directly visit the site and apply online as well, depending on whatever suits you the best. Though if you are certain about getting the loan, then you can consider getting it from Loan Center Canada and get the best help.