Maternity Leave Loan Options

Maternity Leave Loan Options

Written by Caitlin Wood
Last Updated December 4, 2018

If you’re pregnant or thinking of becoming a parent in the near future, it’s important to understand what being pregnant means in relation to your job and income. When making the decision to have a baby and start a family, it’s necessary to start saving money right away. Begin estimating the costs that come with having a baby, then assess your own financial situation and see if you’re capable of having a baby without going into debt. Knowing how much you will need in the future will help you prepare a budget for now. By calculating the costs over the first year, you can calculate how much you need to save every month. An average monthly cost for baby expenses can range anywhere between $400-500 a month, excluding emergency costs that can arise. For some, saving an extra $500 a month is manageable and for others, it can be a struggle, this is why being financially prepared for your unique needs is so important.

Learn how to live off of one income here.

What is Maternity Leave?

Maternity leave represents the period of time a woman takes off work in order to nurture and raise her newly born or adopted child. This leave is a form of benefit our government provides to employed women who are pregnant, just gave birth, or is caring for a newborn or adopted baby. This time off is protected, as employers are required to hold your position while you’re away on this leave. Additionally, maternity leave is a basic right that entitles mothers to receive up to 15 weeks of secured, paid time off. The amount received during this absence is reduced to around 40% of your weekly salary. In order to qualify for this form of employment insurance, it is necessary to accumulate at least 600 hours of employment within the past year.

Maternity leave is a total of 50 weeks, which is split into two parts. Of the 50 weeks of government benefits, 15 weeks is EI Maternity Benefits and 35 weeks is EI Parental Benefits.

EI Maternity Benefits

Employee Insurance Maternity Benefits are presented to biological or surrogate mothers who are unable to work because they are pregnant or recently gave birth. This government benefit offers mothers up to 15 weeks of paid time off, which can begin as early as eight weeks before the baby is due and can extend to 17 weeks after the baby is born. However, any extended leaves of absence above and beyond the 15 weeks will not be compensated for. Keep in mind, 15 weeks is the general Canadian rule, but this time can vary depending on which province you live in.

EI Parental Benefits

Employee Insurance Parental Benefits are accessible by biological, adoptive, or legally recognized parents who are taking care of a newborn or adopted child. This benefit offers a maximum of 35 weeks off, which both parents can share however they’d like. This part of the benefit is not compensated for.

It is important to remember that the number of weeks of paid time off doesn’t change, even if you have multiple births (twins, triplets, etc.)

Cost of raising a child in CanadaCheck out this infographic for more information and statistics about raising a child in Canada. 

What is a Maternity Leave Loan?

A maternity leave loan consists of borrowing money from a lender in order to have access to money during or after your pregnancy. Applying for a maternity leave loan allows you to receive a cushion of cash that will ensure that you or your partner can stay at home and care for your child should you choose to do so.

With some extra cash, the part of your unpaid maternity leave will be funded so you don’t have to worry about the loss of income throughout these months. Moreover, the optimal time for pregnant mothers to request a maternity leave loan is when she is still working. Being an active employee and earning an ongoing salary will significantly increase your chances of getting approved. Once a woman stops working, the requirements are much stricter, thus it can become more difficult to be accepted. Additionally, having a good credit score and a constant reliable source of income will significantly increase the likelihood of being approved.

Should you help your child graduate debt free? Click here.

We highly recommend that you carefully consider whether taking a maternity leave loan is the right financial decision for you and your family. The money from this loan can allow new parents to transition into becoming families more smoothly, without feeling stressed about money. This will allow them to fully enjoy their first few months with their baby. However, it should not create a financial crisis. Thus, if you decide to take a loan, you must be in and maintain a stable financial position. The following loan requirements will help you determine if borrowing money is an option for you.

  1. The lender or creditor will need the first payment within eight weeks of the distribution, thus, ensure you have this money ready in advance. If you think this may be a struggle, reconsider taking out a loan.
  2. Using the funds from the loan disbursement, pay the first few monthly payments. This way, you won’t fall behind on the first payments.
  3. Confirm that your employer will keep your job open and available for you upon your return. It is critical to have a stable job to return to once the leave is over in order to pay off the loan as quickly as possible. Lack of employment can cause serious problems, as you won’t be able to return to work right away and will spend time looking for a new one.

Borrowing money can be risky, but with the right guidance, it can be immensely helpful. You should borrow an amount that will cover the extra baby expenses and the lost income. Of this amount, you should also include an amount specifically for emergencies. It’s very important to forecast and budget for extra costs, such as medical care and baby emergencies. However, don’t get carried away and keep the principal amount low enough that you can pay it in small, affordable monthly payments. To ensure your best chances at receiving a loan, keep a strong and positive credit history, along with at least one current and constant income.

Want more information on how to compare lenders? Check out this article.

Who Can Benefit From a Maternity Leave Loan?

All parents can benefit from maternity leave loans, including birth parents, surrogate mothers, and adoptive parents. With a smaller income and additional baby costs, it can be a struggle for families to keep up with daily finances, especially those already struggling. With a maternity leave loan, both parents can have peace of mind. With less pressure, a loan will provide a chance for one of the parents to remain home and nurture the child.

Many parents choose to stay at home with the new born babies for more than the allotted 35 weeks, a maternity loan can help facilitate this. Obviously, it’s important for a family to do what is right for them. If going back to work is right for your family then at is what you should do. Regardless, parents that can stay home longer, are less stressed out because of their finances or are empowered to make great choices for their families can greatly benefit a newborn child.

Why Would Someone Want to Take Out a Maternity Leave Loan?

The maximum amount of paid weeks off is 15, which is close to four months. However, a baby’s first few months are precious and vital for their growth. For those parents who don’t wish to return to work quickly and would rather spend more time nurturing their child, a maternity leave loan will give them the relaxed time they need with their baby. With a loan, a parent can take more time off work. Additionally, as mentioned above, because of the lost income and expensive baby expenditures, it may be necessary to take out a loan. Most people don’t realize how expensive it is to have a baby, so some may not have much of an option. While making only 40% of your usual income and keeping your regular expenses, parents need extra cash to prepare for the babies arrival.

The Pros of a Maternity Leave Loan

  • More money available to help with unexpected baby expenses and medical bills  
  • More time off work to bond with your baby   
  • Piece of mind knowing you can spend more time with your baby

The Cons of a Maternity Leave Loan

  • Stress of repayment
  • High-interest rates (if you have a bad credit score)
  • All loans are risky, especially if you don’t have a stable job

As you can see, with a loss of income, baby expenses, and regular daily costs of living, having a baby is an expensive process. Luckily, there are government benefits and personal loans that could help with financing your maternity leave. Just remember, saving up as much as you can during your pregnancy is critical and will pay off more than you think.

Guarantor Loans

These are another loan option and are generally more beneficial to borrowers with bad credit or who are having trouble qualifying for regular loans for whatever reason. In order to apply, you would need to get a trusted friend or family member to co-sign your loan. Ideally, they should have good credit and decent finances (reasonable income, steady employment, etc.).

For more information about guarantor loans, click here

The Pros of Guarantor Loans

  • Guarantor loans are similar to regular personal loans, meaning you can often negotiate a payment schedule that will work for your finances.
  • Rather than your own credit being the deciding factor, lenders will take your cosigner’s credit into account. Even if you have bad credit, you should still receive approval.
  • You’re still the primary loan payer. So, even if your credit isn’t checked, you’ll still be improving your credit score with every responsible loan payment you make.
  • Since you have a guarantor, you may receive a better interest rate for your payments than you would with most bad credit personal loans (once you’re approved).

The Cons of Guarantor Loans

  • As it would be with any loan product, you’ll rack up penalties and interest whenever you default (make a short or late payment, or miss one entirely). This could lead to credit damage and unmanageable debt.
  • Once they’ve agreed to be your guarantor, your cosigner becomes secondarily responsible for your loan payments. That means if you default for too long and your lender thinks you won’t pay them back, the main responsibility falls to your guarantor. If they also default, similar consequences could also ruin their credit and finances.

Read this before you decide that a guarantor loan is right for you. 

Interested in Applying for a Personal Loan?

Caitlin is a graduate of Dawson College and Concordia University and has been working in the personal finance industry for over eight years. She believes that education and knowledge are the two most important factors in the creation of healthy financial habits. She also believes that openly discussing money and credit, and the responsibilities that come with them can lead to better decisions and a greater sense of financial security. One of the main ways she’s built good financial habits is by budgeting and tracking her spending through the YNAB budgeting app. She also automates her savings so she never forgets to put aside a portion of her income into her TFSA. She believes investing and passive income is key to earning financial freedom. She also uses her Aeroplan TD credit card to collect Aeroplan points so that she can save money when she travels.

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