There is nothing wrong with using a loan to meet current or future needs. The issues arise when you don't pay your loan on time. Let's look at where to get a loan and what happens if you don't pay it back on time.
Where to get loans
There was a time when only those with steady jobs and a home for collateral could get a loan. However, those days excluded startups, entrepreneurs, those with no collateral, and those in underserved communities. Thankfully, today's loan options include:
- Credit unions
- Private lenders
- Short-term loan/payday loan companies
- Government benefit programs
These options help those without access to traditional loan structures get the help they need.
Why is it important to pay back loans promptly?
No matter where you get your loan, it will incur interest. The interest is the "cost" to borrow the money. The lower your credit score or lack of collateral, the higher your interest costs. Interest compounds over time. So if you struggle to pay back the principal amount and do not account for the interest, the amount you pay back will grow instead of shrink.
Consequences of late loan payments
Missed or late payments accrue interest quickly, leading the individual to:
- Struggle with managing daily costs
- Have the loan wind up in collections
- Damage to credit score (which impairs the ability to get future loans)
- The mental and financial stress that impacts wellbeing
Before applying for a loan, consider your current budget and credit score. The credit score range in Canada plays a significant role in determining how much you can borrow. It will also help the lender assign the appropriate interest rate for you (depending on their process).
Before you apply for a loan, calculating your entire loan payment with interest is vital. Although your lender will provide you with their numbers, make sure you double-check them on your own, especially regarding the incurred interest. If you are used to paying with your credit card, you are most likely aware of the importance of knowing your interest rate.
Before you sign on the dotted line, make sure you understand:
- The length of the loan
- The principal cost
- The interest cost (both monthly and over the full term)
- Penalties for late payments
- The consequences of defaulting on the loan
Other additional factors may be involved, so make sure you understand the intricacies of the contract.
Using loans to meet sudden financial obligations is not a bad idea. It's mismanagement of loans and not understanding how debt and interest work which cause issues. Always choose a short-term loan provider that is fully transparent. Visit My Canada Payday to see if getting a cash advance is right for you.