Online loans are increasingly popular in Canada with good reason. Online personal loans give you the funds you need to handle an emergency or consolidate other, more expensive debt. And, unlike credit cards, personal loans come with a set number of payments. When you’ve made all the payments, your loan is repaid in full. Of course, online loans may not be the right solution for every, so understanding how these loans work is important.
Understanding loan types
Borrowing money from a bank is a something most Canadians are familiar with. After all, more than 73 percent of Canadians already have outstanding debt. So, the concept of borrowing is straightforward: You ask the bank for money. The bank decides if you’re likely to pay the money back. If you are deemed worthy, the bank sends you the funds and you pay the money back over time. To make money in the transaction, the bank charges you interest, so you wind up paying back more than you borrowed.
This is the basic loan formula, and it holds true for mortgages and car loans as well as credit cards. Mortgages and car loans are both considered secured debt because the bank can take your house or car and sell it to get their money back if you fail to repay the loan.
Credit cards are unsecured debt. The bank gives you a line of credit and lets you spend it on whatever you want, provided you pay some of it back each month. Since unsecured lines of credit are considered riskier, credit cards come with a much higher interest rate. Additionally, credit cards accrue that expensive interest at a much higher rate since payments are continuous and ongoing rather than a set amount of time. This may be why the average Canadian carries $2600 in credit card debt at any given time.
What are Personal Loans?
Personal loans hit a middle point between traditional, secured loans and expensive credit cards. With a personal loan, you apply for a bank loan that is unsecured – it is not tied to a new car or other type of collateral. If approved, the bank offers you a set amount of money that you can use for any purpose. You can use a personal loan to pay off expensive credit cards once and for all. The funds can cover a financial emergency or help you cover the costs of other important purchases or expenses. It’s up to you.
Then, about a month after getting the loan funds, you will start paying them back at a set amount of interest with set monthly payments. When you’ve finished all the payments, you’ll have paid back the debt in full. This is the beauty of installment loans. Unlike credit cards with their ongoing payments, installment loans have a set number of payments – perhaps six or twenty-four months of regular payments – and then you’ve paid the loan completely.
Pros and Cons of Online Loans
Personal loans are available through traditional banks and through several online lenders. Many would-be-borrowers choose online loans due to their advantages over loans from a traditional bank or credit union. Online loans are attractive to borrowers for several reasons:
- You’ll be approved faster. If you apply for an online loan, you may have an answer immediately if you meet the online lender’s basic criteria. In other cases, you’ll have an answer within minutes, hours or a day or two. Online lenders have a faster approval process than traditional banks that have more stringent lending and approval criteria.
- You’ll get funds faster. Once approved for an online loan, the lender can deposit funds directly into your bank account quickly – perhaps in a matter of only hours. Online lenders naturally take advantage of online efficiencies when it comes to moving money.
- You’ll qualify more easily. Online lenders have a wider range of loan types to match the needs of their borrowers. If you have bad credit or you’re working to rebuild your credit, online lenders will likely have loans that work for you based on evidence of your steady income rather than your credit score.
Making Online Loans Work for You
Thinking about borrowing money? Online loans may be a great opportunity to take back control of your finances and pay off debt. Are you:
- Trying to pay off expensive credit card debts and eventually be debt free?
- Facing an expensive emergency and need funds immediately?
- Budgeting and looking to consolidate some debts to lower monthly payments?
- Funding an expensive event like a wedding or new purchase and want a set payment schedule?
- Looking for a loan option that gives you freedom to spend money how you need to spend it?
- Hoping to pay off a loan quickly?
If so, online loans may work well for you. After all:
- The application process is quick and easy.
- Funds will be delivered directly to your bank account.
- You can apply online and get a rapid answer day or night.
- Lenders have options for borrowers with bad or no credit.
- Most online loans have no prepayment penalty, so you can pay off your loan faster.
- Interest rates are typically lower than credit cards.
- You can choose the amount and payment terms that are right for you.
If you’re looking for a loan, it’s important to understand your options before borrowing. Online loans offer a fast way to get cash in hand that can help – rather than harm – your monthly budgeting. With online loans, you’re in control of how much you borrow and how quickly you’ll pay the loan back again. Online loans with AimFinance may be exactly the financial solution you are looking for.