Everything you need to know about loans
To purchase a computer, a car or to make any other major purchase, you’ll most probably have to borrow money from your C aisse populaire, your parents, etc.
When you’re older, you might have to borrow money to pursue postsecondary studies, buy a home, install a swimming pool, etc.
How does it work?
The lender and the borrower agree on the following:
- the loan amount
- the repayment period, i.e., the date on which the amount borrowed will have to be fully paid off
- the interest rate, i.e., a percentage of the loan plus principal
Depending on the type of loan, borrowers may have to provide a downpayment, i.e., an amount equal to a certain percentage of the borrowed amount.
Then, each month (or each week, depending on the terms of the loan), borrowers pay back a certain amount, plus interest.
Before your C aisse populaire lends you money, it will want to know about:
- your income (to prove that you are able to pay back the loan)
- your financial assets (savings, investments, possessions of value, e.g., a car)
- your credit history
Why pay interest?
Credit gives you access to money you can use right away. However, you have to reimburse it in 1 or several payments. In return for this service, the lender charges you interest.
Interest is an amount paid to the lender by the borrower. It’s a way for the lender to earn income on the money loaned.
Interest is expressed as a percentage. For example, if you borrow $2,000 at a 10% interest rate, you will have to pay back $2,215 over a 2-year period. That way, the lender earned $215 from the money loaned to you.
How good is your credit rating?
What is a credit rating?
Your credit rating is like your reputation for paying off what you owe. The better your credit rating, the more easily you can get access to credit through a financial institution.
Before granting you a loan, a merchant or financial institution will check whether you’re considered a good or bad credit risk. It goes without saying that if you’re considered a bad risk, it will be harder for you to obtain credit.
Most information on your credit history is kept for 7 years. Together, it makes up your credit rating.
To have a good credit rating, you need to:
- pay your bills promptly
- pay your credit card balance every month, on time
- borrow only the amount you need, within your means
- pay back your loans on time and as soon as possible
If you don’t use credit responsibly, your bad credit rating will come back to haunt you the day you decide to purchase a car, rent an apartment or buy a computer. A poor credit rating can also influence a potential employer.
Remember, even minor slipups on your part will stay on your credit report for 7 years. So take good care of your credit rating!
- If you think there’s a possibility that you won’t be able to pay back your loan, don’t borrow. Ask yourself if you really need to make that purchase.
- Avoid as much as possible taking out a loan at the C aisse populaire when interest rates are very high.
- Put money aside regularly and as early as possible. It’ll give you an advantage when you want to borrow since you’ll have proven to your C aisse populaire that you’re capable of saving.
Did you know?
You’ll have to pay back the loan you took out to buy the car of your dreams even if it’s totalled in an accident, for example. Unless, of course, your car was insured.