What are the Different Types of Loans?

What are the Different Types of Loans?

Having access to credit and loans is important for most Canadians. Here is an overview of the different types of loans to help you choose the best option for your needs.

What is a Personal Loan?

A personal loan provides you with a fixed amount of money that must be paid back in full with interest and applicable fees. Because you pay back the money you borrowed in regular installments these loans are often referred to as an installment loans.  

There are secured loans which require collateral when borrowing or unsecured loans which do not require collateral.

Personal loans are used for many different reasons from a major trip to home renos and from furniture and appliances to cars.  For this reason, they are available in higher dollar amounts.

You can apply for personal loans with banks and credit unions or find other options such as an online lender. For most personal loans there will be a thorough credit check to ensure you are able to pay back the loan.

What is an Installment Loan?

As mentioned above an installment loan is a type of personal loan. It provides you access to money quickly. It is commonly used when money is required in an emergency such as to pay rent, or the need for car repairs. Some people will also use an installment loan for things such as a vacation.

Installment loans have become a popular choice for online loans in Canada. This is because you simply fill out your online loan application, receive your money and then pay back the money within an agreed upon period.

Installment loans are unique to the borrower allowing you to customize the terms to suit your needs. There are also unique charges and fees, so make sure you understand them when you are applying.  

Installment loans usually are quick to process taking just 24 to 48 hours.

What is a Payday Loan?

A payday loan, also known as a cash loan, is a short-term loan that is expected to be paid back by the time you receive your next pay cheque. They come with higher fees and for smaller amounts based on your rate of pay.  

If you are unable to pay back the full or even partial amount, you will be charged high fees and interest rates. Therefore, it is only advisable to use them to help with things such as paying your rent or buying groceries. You should never use a payday loan for non-essentials to avoid further financial issues.

Payday loans are available through cash “stores” as well as cash loans online. When applying for a payday loan in Canada you will need to have proof you earn a regular income, have a bank account and have a permanent address, but you will not have to worry about a credit check.