If you need money quickly to cover costs or pay for an unexpected expense, an installment loan might be right for you. With installment loans, you borrow a fixed amount of money and pay it back in equal payments (or installments) over a specified period.
Before you apply for installment loans in Canada, there are some important questions to ask yourself.
1. How much do I need to borrow?
Some lenders in Canada offer installment loans between $1,000 and $15,000. You don’t want to borrow more than you need because you’ll be paying interest on the amount you borrow. So, before you apply for an installment loan, figure out exactly how much you’ll need to borrow and ask for that amount.
2. How much can I reasonably pay back each month?
With installment loans, you can set your repayment terms, typically anywhere up to 60 months. It’s tempting to want to pay the money back as quickly as possible, but be realistic about how much you can afford. You don’t want to be short on a payment or have to choose between paying your utilities or paying back your loan.
At the same time, a more extended repayment period means you’ll pay more in interest, so the total cost of the loan will be higher. Create a budget so you know exactly how much you can afford to pay monthly without stretching your finances too tight. If you wind up able to pay the loan back more quickly, then that payment will be off your plate.
3. When will you receive the money?
If you need the money ASAP, you don’t want to wait days for the application to be reviewed and the money to be deposited into your bank account. You need the money now. That means you’ll want to go with a lender who accepts online applications and can deposit the money directly into your account. Doing so means you can access the money the same day.
4. What is the total cost of the loan?
Lenders will charge interest on the loan, as well as possible administrative fees and closing costs. Ensure you understand not just how much you’re borrowing but how much you’ll repay by the time the loan is paid off. This will give you a clearer picture of the loan’s actual cost.
Ensure you know the interest rate, any fees or costs, and whether there’s a fee for paying off the loan early. Not all lenders charge a prepayment fee, but some do. Knowing if you’ll pay extra costs when you pay off your loan early is good.
5. How will this loan affect my finances?
You must carefully consider your credit score, current debt load, and need before applying for a loan.
If you already have a considerable debt burden and are having trouble making ends meet, another loan may hurt you in the long run. On the other hand, regularly paying your installment loan can help improve your credit score.
Be very clear about why you need to borrow the money and how the installment loan fits into your overall financial picture.
The bottom line
An installment loan can help you manage your finances, but it’s important to ask some questions before you apply to borrow money. Asking questions and being certain you need the loan will prevent surprises after signing the paperwork.
Name: Michael Bertini
Email: [email protected]
Job Title: Consultant
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