Many Canadians access financial support through several different channels. Some of these include credit cards, savings accounts, and personal loans. Any person can deem them essential because they provide financial means during emergencies and even help them build their credit.
When dealing with borrowing processes like applying for financial loans, there are certain things you need to consider. Any loan is a big financial commitment to make, and going over these key considerations will help you decide if you’re ready for that. It’s even better if you have a financial counsellor to guide you through the decision-making process.
Here’s what you should consider before borrowing money:
Your Credit Score
Before applying for a loan, it’s always advisable to know your credit score to help you plan for your loan applications. Your credit score will determine which lenders you should aim for and what you should do to strengthen your loan application. If you’re confident with your credit score an feel it is very competitive, you don’t need to worry as much about credit inquiries. However, if your credit score is low, your inquiries could impact it negatively.
Before you borrow money, make sure to set a budget for yourself and stick to it. A budget will keep you from borrowing more than what you can pay for down the line, saving you from falling into deep financial trouble. A financial counsellor would advise you not to borrow the maximum amount a loan offers because unexpected events could change your financial situation at any moment. Instead, your budget should fall under an amount you’re confident you can pay back in time.
The Rates and Offers of Different Lenders
Before settling on any lender’s offer, take into account all the rates and offers that are available to you. You can use loan comparison websites to see quotes from different lenders and determine which has the best deal. Another advantage of using loan comparison websites is that you can receive many quotes with only one application, making it easier to field your options.
As you’re getting into the loan application process, keep in mind that there may be additional fees and not just interest charges. These fees will depend on the lender you borrow money from and determine whether they’re suitable for a financial business. Late fees and NSF fees are charged when you miss a payments, while sometimnes prepayment fees are charged if you pay too early. The term length will also affect how much you pay in the long run, with a shorter term giving you higher monthly payments but a lower total of interest paid once the loan is completed.
Before borrowing money, consider how you will make your payments and whether you can accomplish them on time. Missed or late payments can negatively impact your credit score by at least 35 percent and cost you more in NSF fees. The credit bureaus record this payment, which can last up to seven years. One of the best ways to ensure you don’t send in a late fee is to automate them or prepay them.
Lastly, before you commit to any kind of loan, consider getting advice or help from a financial counsellor or Licensed Insolvency Trustee. They can assist you with reviewing your situation and help you keep your finances under control and give you a better picture of the money you can afford to borrow from a lender, if you decide to do so. They can also guide you to develop an efficient plan to pay your debts without racking up miscellaneous fees and negotiate with your creditors if the need arises.
Applying for a loan is a big financial commitment, which is why you need to consider all the factors that could affect your ability to pay your debts on time. If you’re unsure of your financial capability, a financial counsellor and Licensed Insolvency Trustee can help you determine your budget and the offers you should take.
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