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How do consumer loans work?

A consumer loan is like an IOU. Let’s say you borrow money from a friend with the knowledge you will be paying him back. A consumer loan is like that (except you borrow money from a financial institution). Let’s take a little deeper look into different pieces of consumer loans:

Types of consumer loans:

  • Fixed and for a specific purpose (such a term loan with fixed payments or dates). Maybe you are looking to purchase a used car or something else. For this, you may be making monthly payments for 48 months, for example.
  • Re-advanceable. Some loans are re-advanceable and have interest-only payments that are due at the end of each month (such as a Quick Loan). This type of loan is more flexible because there is not a fixed date for full repayment and you can make lump sum payments every two to three month. It can be used for education, emergency expenses, things that come up, home renovations and such.

Types of rates:

  • Fixed rate is a stable rate of interest that will remain the same through the term of the loan.
  • Variable rate is a rate of interest that varies over time with the prime rate. Interest you are charged during this period will increase and decrease as the prime rate goes up and down. Your payment stays the same.
  • Prime rate is the base for rates financial institutions charge of various types of loans. Rates on new and variable rate loans, including mortgages and lines of credit, rise and fall with prime. The higher the prime rate, the more it will cost to borrow. The Bank of Canada determines and sets the prime rate based on a number of factors.

Repayment options:

Depending on your needs, there is a variety of flexible repayment options to help meet your needs.

  • Principal and interest payments – This flexible options helps you reduce the amount you owe over a set period.
  • Extra payments – Perhaps you would like to make some extra payments to get rid of your consumer loan even more quickly – all you need to do is specify the payments are principal only (which means the amount goes straight to paying down your loan).
  • Interest-only payments on our Quick Loan – Perhaps you have an emergency expense where something like a Quick Loan works better where you can make interest only payments until things have levelled out again. Quick Loans have no fixed payment dates to pay off the loan in full so this mean you will be able to pay down your loan in a time that better meets your needs.

Flexible payment dates:

Depending on the type of loan, payment dates can be flexible – such as monthly, bi-weekly or weekly or accelerated bi-weekly and weekly (where you can pay down things more quickly with the last two choices). We can set up the repayment frequencies and dates based on your preference. Or, maybe a quick loan is better for you as it has a little more flexibility with repayments, if needed. If you would like to find out which option best meets your needs or if are interested in applying for a loan, contact us. We can help you get started with a plan that works for you.

Up Next: How can I protect my mortgage in the event of the unexpected?

What would you do if you had to sell your home due to a family tragedy such as a job loss, critical illness, sickness, accident or death?
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