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Sometimes life throws us a curveball that we’re not always prepared for, especially in the financial department. Maybe you got into a fender-bender and need to repair your car right away, or perhaps you want to take a big memorable family trip with the kids before they move out and start life on their own. There are so many different reasons why consumers may need a little financial boost and installment loans in Ontario can definitely help in these situations.
For more information about loans in Ontario, click here.
What is an Installment Loan?
As the name suggests, an installment loan in Ontario is where you take out a specific amount of money, and then repay it in installments. The amount that you pay back every month is usually a fixed amount that consists of both principal and interest portions. The interest portion is based on the interest rate that you are charged.
Want to know how lenders arrive at their interest rates? Read this for the answer.
You will also be given a loan term, which is the length of time that you have to pay back the loan in full. If, for instance, you’re given a 3-year term, that means the entire loan amount – as well as interest – will have to be paid back by the time three years is up.
Collateralized Vs. Non-Collateral Installment Loans
Installment loans in Ontario can either have collateral or not have collateral. This basically means that the loan can either be secured or unsecured. A secured installment loan (one that has collateral) essentially means that the loan can only be taken out with some collateral to go along with it.
An auto loan or mortgage are examples of collateralized loans because the car or house backs up the loans, respectively. If you default on your loan, your lender can repossess these items in order to recoup their losses. These types of loans typically come with lower interest rates compared to loans without collateral.
Unsecured installment loans in Ontario, on the other hand, do not involve any collateral. In this case, there is no collateral being used to back up the loan, and as such, lenders typically charge a higher interest rate to make up for their increased risk. If you default on the loan, the lender has no collateral to take back. Instead, the lender recoups more money in the form of a higher interest rate throughout the duration of the installment loan.
Can You Take Out an Installment Loan For Debt Consolidation?
There are plenty of scenarios where an installment loan in Ontario could work, such as covering the cost of:
New furniture for your home
The list can keep going. But what about debt consolidation? Can installment loans be used for this reason?
Yes, they can, but you need to use them with caution for this purpose. You don’t want to add too much more debt to the pile in order to deal with your current debt. It must make financial sense before you consider taking out an installment loan in Ontario to consolidate your debt.
The biggest reason to apply for an installment loan to consolidate debt is to take advantage of a much lower interest rate. If you have a lot of high-interest debt on the books – such as credit cards – a loan at a lower rate can help you save a lot of money over time.
Debt consolidation involves condensing all of your debt into one easy-to-manage loan rather than having to pay multiple bills at varying interest rates every month. If the installment loan you take out has a much lower rate than the debt you currently carry, then applying for one might make financial sense.
Wondering if you can beat your lender’s interest rate? Find out here.
Convenience is Important
The loan term and the interest rates are all agreed upon when you take out an installment loan in Ontario, which will allow you to know exactly how much money you’ll need to repay over that specific time period. On the other hand, having separate debts can make it take longer to repay all the money you owe.
Only Borrow What You Need
However, it should be noted that installment loans can make it tempting to take out more money than you require. Even though you may be eligible to take out $10,000 doesn’t mean that you should, for instance. If you only require $5,000, then stick to that amount and don’t give in to financial temptation.
Always Think About Your Credit
Further, you will need to assess how your credit score will be affected by taking out an installment loan in Ontario. You might want to speak with a financial advisor before you apply for an installment loan to consolidate your debt to see how your credit score may be impacted.
Frequently Asked Questions
Should I use an installment loan or credit card for a major purchase?
You should consider an installment loan for a major purchase when you’d like to spread the payments over several months. By contrast, holding a balance on your credit card can become very expensive. There is also the chance your balance can keep growing as you make small purchases. An installment loan ensures that you adhere to a fixed schedule to pay off that major purchase. Use a credit card only when you can easily pay off the balance before the interest-free grace period.
How can I get approved for an installment loan in Ontario?
In the long run, reduce existing debts, improve your credit score, and boost your income. These will improve your chances of qualifying for an installment loan in Ontario. In the short term, add a co-signer to increase your chances of approval. If possible, secure your loan with an asset such as a vehicle or home equity is a sure-fire way to incentivize a lender to extend you credit.
I lost my job. Can I still qualify for an installment loan?
Yes, it’s entirely possible. Most lenders do prefer established employment income. However, there are lenders in Ontario who are willing to approve you for an installment loan so long as you have some form of alternative income. This includes incomes from government programs such as the Canadian Child Benefit (CCB), Canadian Pension Plan (CPP), Employment Insurance (EI), and more. Keep in mind that due to the added risk, lenders may charge a higher interest rate. They will also require additional documents to validate these types of alternative incomes. You may be required to provide bank statements in addition to government documents provide the income amount and for how long.
Need an Installment Loan? Apply Today!
Installment loans in Ontario can definitely be very helpful and useful tools to help you get out of a financial pickle. Depending on what you need the money for, you can take out an installment loan in varying amounts. Be sure to call Loans Canada today to get an installment loan in Ontario that will suit your situation perfectly.