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Why Research Should Be a Priority Before Taking On Debt

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Why Research Should Be a Priority Before Taking On Debt

Written by Priyanka Correia

Why Research Should Be a Priority Before Taking On Debt


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Car expenses, mortgage payments, utility bills, credit card bills, school tuition are just some of the expenses many Canadian households deal with year-round. It’s no wonder why more and more consumers are seeking loans to help them cover the day to day expenses associated with living in Canada. When it comes to applying for any type of loan, whether you need help making ends meet or you’re in the market for a mortgage, research is the number one step that can help you find the right lender, choose the best loan and ultimately make sure you’re working with a reputable lender.

Research gives you the knowledge you need to make informed decisions that will lessen the cost of borrowing and save you money. This type of information can be accessed through a variety of sources, most notably the internet. But, of course, don’t rule our friends and family as well as trained financial advisors. With information so readily available at our fingertips, more consumers should be conducting their own research prior to applying for financing. In a study we conducted earlier this year (Financial Literacy vs. Financial Well-Being And Credit-Constrained Canadians), we noticed that the consumers who would benefit most from researching lenders and comparing offers were, in fact, doing neither.

How Research Can Help You Make Better Decisions

In our study, many individuals who portrayed signs of poor financial health (low credit scores and high levels of debt), did not engage in research before applying for a loan. We found that of those surveyed 38% never or rarely compared lenders, 60% never or rarely call a lender, 70% never or rarely sought expert financial advice, and 65% never or rarely consulted with friends and family before applying for a loan. Research allows you to carefully consider all the credit options available for your needs. It also provides you with an eagle-eye view of all the different offers accessible to you. Calling a lender prior to applying for a loan can help you legitimize the business or clarify any uncertainties you may have.

Moreover, doing your due diligence before applying for a loan can help you gain more financial knowledge. In particular, seeking advice from financial advisors, family and others who have a solid understanding of the subject can increase financial literacy. This is important as the 2019 Canadian Financial Capability Survey found that “young people who speak with their families about financial matters tend to have a higher level of financial literacy” which as we all know leads to better financial decisions.  As such, we encourage both the youth and Canadians, in general, to do their research because it not only helps you gain valuable financial information, but it will lead to better decisions when taking on new debt. 

Benefits of Researching Before Applying For a Loan

You may be wondering what exactly does it mean to “research” before applying for a loan. Well, as mentioned, research is using any and all resources available to get pertinent information on the subject at hand so that you may make an informed decision that will benefit you. For example, you may ask advice from family or a financial advisor about the types of loans you can take to cover an emergency, you may go online to compare rates, or perhaps you’ll call a lender to ask about their products and services. All of these actions you can take are forms of research that will lead to a better decision. Let us look at how.

  • Know all your options. There are many credit products available in Canada; understanding which ones work best for your situation can save you money and financial trouble in the future. For example, both a payday loan and a personal loan can be used to pay for an emergency, but without some prior research, you may not realize that a payday loan is one of the most expensive forms of financing and can land you in a cycle of debt.
  • Avoid applying to too many places by determining the requirements. When you apply for a loan with a lender, many will pull your credit file as a means of determining your creditworthiness. Problem is, each hard inquiry will decrease your credit score by a few points. As such, calling a lender or doing some online research to determine the minimum credit score requirement can help you avoid applying with a lender who is likely to turn you down based on your credit. 
  • Compare offers and save money. Interest rate, repayment period, and fees are just some of the factors you should be comparing as they can greatly affect the cost of a loan. Being able to see what options are available will give you the power to choose an offer that best meets your needs and saves you money.  
  • You can leverage quotes. When you shop around for a lender, you’ll notice that you can often get a quote for free. A quote is an offer that the lender is obligated to honour so long as your finances stay the same. This can give you the power to negotiate better deals with other lenders and give you the time you need to make a decision without worrying about the offer disappearing. 
  • Increase your financial literacy. Research helps you gain knowledge regarding the subject you are exploring. The more knowledge you gain on the subject, the more likely you will be to make good decisions which ultimately will lead to better financial well being. 

How To Researching Before Applying For a Loan 

Now that you understand the benefits of researching prior to applying for a loan, let’s look at the key factors you should be looking at to reap these benefits. There are two ways you can go about your research: one, you can scrounge up the information yourself on all the different lenders in your area or two, you can use a comparison website to do all the legwork for you. 

Regardless of which method you choose to do your research, these are the key factors you should be looking at (but not limited to):


Website: Their website is usually a lender’s first point of contact with its clients. Check to see if the website is safe and looks legitimate. 

Reviews: Reviews are a great way to determine the lender’s service and legitimacy. It can also provide details on potential problems previous clients have faced.

Customer service: be sure to verify if the lender has good service by calling and asking questions. If they are hard to reach or unable to answer your questions, it could be a sign that you’ll continue to have issues in the future.

Location: Fake lenders will often have no location or address or a false location. 


Interest rate: We all know that the lowest interest rate is almost always the best option. Researching lenders before applying, will not only allow you to find the best rate but can provide you with details about how the rate is calculated.

Repayment period: The repayment period is the total time you will take to repay the loan. Long loan terms mean you will have lower payments but overall will be paying more in interest. Short loan terms have the exact opposite effect. Depending on your financial situation, you may choose one or the other. Just keep in mind, a shorter term will help you pay down your debt quicker and ultimately cost you less.

Fees: Lenders that have lower interest rates may have high fees to compensate. So, be aware of origination fees, administrative fees, and penalty fees. 

Type: The type of loan you choose can have a significant impact on your finances. Personal loans, payday loans, line of credit, home equity loans, home equity line of credit can all be used for extra funds but each type is better suited for certain purposes. 

Bottom Line

Researching lenders and loans may seem tiresome but it is worth the effort you put into it. It is a healthy habit that can have positive effects on your financial health. Research helps grow your financial literacy, giving you the power to make good financial decisions. From understanding your options to saving money to gaining better financial well-being, research is a small price to pay. 

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