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Frequently asked questions about loans
How to calculate interest rate on a loan?
Most loans charge interest at a compounding rate. This means that instead of interest being accumulated on just the principal of the loan, it accumulates on both the principal and accumulated interest. To calculate compounded interest rate on personal loans, enter the variables into the various fields until the “Total interest” number on the right equalizes the total interest payments you will be expected to pay over the life of the loan. The rate at which that happens is your interest rate on the loan.
How to calculate car loan interest?
Car loan interest is usually calculated on a simple interest basis. As such, you can use the Total Interest Payments = Principal x Annual Rate x Number of Periods of the car loan (measured in years) Alternatively, there are also online calculators available that can provide a quick and easy answer based on the same inputs.
What is a payday loan?
A payday loan is a short-term loan that is usually provided by an alternative lender (as opposed to large banks and institutions) and tends to be unsecured in nature. These payday loans offer a relatively small sum of principal at a higher interest rate than traditional lenders as the borrowers they service tend to be people with minimal and/or poor credit histories. Also called cash advance loans, payday loans are repaid by taking a portion of the subsequent paycheck(s) of the borrower until principal and interest is fully repaid.
How to get a loan with bad credit?
If you have just started building your credit history or have a poor credit score, it may be difficult to obtain financing from traditional lenders such as banks. As such, you may have to approach an alternative or online lender who typically don’t have the same regulatory and risk management requirements as the larger banks and may be more willing to extend financing. If you are not in a rush to obtain the loan, you can also try to rebuild your credit by selecting specialized credit cards that serve this exact purpose and ensuring that you make on-time payments each time.
How to get a loan from the bank?
Traditional institutions such as banks usually lend to credit borrowers who have a demonstrated history of repayment and above-average to strong credit scores. To obtain a bank loan, you generally need to gather the following as a baseline: updated credit reports with a score preferably above 640, pay stubs/T4s (or other proof of income if you are an entrepreneur), photo identification, and proof that you own the collateral (if you are applying for a secured loan such as a mortgage). Banks may then ask for specific requirements that vary from lender to lender and borrower to borrower.
What is a loan shark?
A loan shark is a type of alternative lender that charges exorbitantly high rates of interest on any principal borrowed. Loan sharks are known to use illegal practices such as pressuring, coercion or threats to enforce repayment. If you feel like the integrity of the transaction is being compromised at any point and the lender is not dealing in good faith, you are likely dealing with a loan shark. It is also important to remember that any loan extended at a rate of interest of 60%+ is illegal in Canada.
Do student loans affect credit score?
Yes, the short answer is that student loans do impact your credit score. Ultimately, any form of debt that bears interest and requires payment of interest one way or another is considered a debt product and will impact credit score. Good behaviour and diligent repayments on student loans improve your credit score while missed or late payments may cause it to decline.
Can you sell a car with a loan on it?
No, you cannot transfer ownership of your car without paying off the full proceeds of the car loan on it. If you have any sort of outstanding debt on the car, they need to be cleared with the bank (including any prepayment penalties if applicable) and the bank will then issue a certificate stating that the loan has been paid off in full. From there, you can sell the car to the buyer. If you cannot pay off the loan in its entirety, you will likely have to abort selling the car.
What is an installment loan?
Most personal and business loans are extended as installment loans wherein a lump sum payment of the principal amount is paid by the lender to the borrower upfront. Thereafter, depending on the terms of the loan agreement, the borrower has to pay both principal and interest in scheduled installments which may be weekly, biweekly, monthly or quarterly. In certain instances, lenders may also allow a balloon loan where the borrower only pays back principal through the course of the loan’s duration and pays back interest as one last lump sum payment along with the final principal payment at maturity. If you don’t have an adequate credit score to get an installment loan from a traditional lender, you can use special credit cards that are designed to rebuild your credit before applying for the loan.
How to get a car loan?
Car loans tend to be secured loans as the loan itself is collateralized by the vehicle. To obtain this loan, you will likely need to furnish a few documents to your lender including your credit history and report, pay stubs/T4s, income and expense documentation, personal IDs, bank statements, and the supporting documents confirming your ownership of the vehicle. Various institutions can offer you a car loan. Car dealerships offer low-interest loans on new cars. Alternatively, for second-hand cars, people with strong credit scores might opt to use a personal auto loan from a traditional lender such as a bank. For people with credit scores that are not as good, they may have to approach subprime car lenders or used dealerships, both of which charge loans at a higher rate of interest.
What is a “Buy Now, Pay Later” loan?
Buy Now, Pay Later loans are an increasingly common form of financing at retailer points of sale to help customers finance expensive purchases from the retailer. The Buy Now Pay Later Loan is a form of installment loan where the total price the customer needs is provided to the retailer upfront on the customer’s behalf. Thereafter, the customer repays principal and interest to the BNPL provider in regularly scheduled installments while gaining the merits of purchasing and utilizing the product right away.
What is a consolidation loan?
A consolidation loan can be a highly effective tool if used correctly and with the right discipline. With a consolidation loan, a borrower tallies up all their outstanding personal debts from credit cards, student loans, car loans, etc. and requests a single personal loan from a lender in the cumulative sum of these debts. Once the consolidation loan is provided, the borrower then uses the funds to pay off all existing individual debts, and then pays interest only on the consolidation loan. The main advantages of this is that the consolidation loan usually comes with a more attractive interest rate than the individual debts and paying off one loan each month simplifies the administrative hassle of paying off multiple debts each month.