Did you know that Canada’s household debt was just over $2.1 trillion at the start of 2023? Some financial advisors and economists see this as a terrible thing, while others see it as very positive. The fact is that debt is a powerful, neutral financial tool that can help you achieve your dreams or turn into a looming beast. That’s why, when shopping for online loans, you need to know what you need a loan for, how you’ll pay it back, and what type of loan suits your vision best.
In this article, we’re going to look at the best online loans and how best to use them. Keep reading to learn more.
Start With the Need
If you’re considering taking out a loan, start by looking at what needs the loan has to meet. The question you want to answer is whether you’re about to make good debt or bad debt.
Good debt has two main characteristics: it will pay itself back by freeing you up to earn more or by getting you a job or asset that makes more (investment) and there’s a clear enough road to paying it back (feasible). These aren’t absolute qualities, they exist on a continuum.
Something may be a significant potential investment but can be too risky to be feasible, or it may be so easy to pay for that you might as well pay in cash and not take the risk in the first place. These sorts of areas fit into the gray area of loan consideration and should be handled on a case-by-case basis.
Bad debt is normally debt that buys you assets that depreciate quickly or consumables without paying for itself in the long run. Sometimes convenience makes buying a car or consumables on debt worth it, but this isn’t always the case. The best factor to indicate whether the debt you make will be worth it, in the end, is the interest rate on the loan.
Selecting the Loan Type
There are different loans for different things and sometimes an online loan lender specializes in only one or two types. Are you looking for debt consolidation, something to cover a surprise expense, tax re-financing, or something else?
The next thing to do is choose what kind of collateral you’ll need to put up to obtain the loan. You may be able to borrow against your home’s equity, real estate, investments, savings, vehicles, and even valuable jewelry. If you have a good enough credit record, you may even be eligible for a collateral-free or unsecured loan.
Putting up collateral is always a better choice because your installments are typically lower and you don’t open yourself up to lawsuits if you default. If you take this option, remember to look at the lender’s loan-to-value ratio to show what kind of items you need to collateralize to get the amount of cash you need.
Choosing an Amount
Prudent advice would be to avoid financing something 100% with debt, even though this isn’t always possible. So we’ll split this section into two scenarios, one where you’re relying 100% on debt and another where you don’t have to.
In the first scenario, the main factors that are going to make the debt good or bad are the reason for the debt and the interest repayments. However, if you’re looking to buy a particular product or rent a service once-off, considering a cheaper option may decrease the loan amount. This could bring the actual amount down to a feasible level.
In the second scenario, opting for a smaller loan and paying for the rest of the product with cash frees you up to consider how the loan will affect your cash flow. Fast cash is only good when it serves a bigger financial plan.
Do you want more of your money free now and bind yourself to larger periodic payments, or will it be better to have less of your own money now but have more available in the future? Strategically choosing your loan amount lets you balance fast money now against more money later.
Considering the Interest
The interest is often called the actual cost of the loan. Once you’ve settled on a reasonable amount, you’ll want to start applying for a loan. This starts by surveying the different online services that offer loans for your type of situation (student loan, emergency personal loan, consolidation, etc.).
Take the amount you need to borrow and break it up into monthly repayments or attach a set interest amount or percentage with a loan calculator. This will show you roughly how much you’ll need to budget each month for the loan you’re considering.
Note that your credit score, collateral, and other such variables will also have a say so you can’t simply punch in “1 % interest please” because that would be an unrealistic expectation.
Take this step with the final stage so that you can weigh up different loans, interest rates, and budgets before making your final decision. You can always go back and reformulate a plan before you sign the contract.
Selecting a Lender
When you apply for a loan, you’re placing a lot of trust in the lender you select. The best online loans come from reputable lenders. When you’re shopping for a loan online, be sure to look at Trustpilot or a similar service to see what kind of operation the lender is running.
Some markers (in order of importance) of a good service provider are helpfulness, security, professionalism, and friendliness. You want to find a lender that offers what you want, keeps your information safe, and doesn’t badger you with technical, legal, and financial confusion. A service that isn’t transparent and clear about how they operate is probably less safe than a service that is.
Finding a suitable lender is also one of the ways of getting a lower interest rate.
Find the Best Online Loans
Online loans are a wonderful and convenient financing tool when they’re used properly. Finding the best online loan starts with making a plan and budget for the loan. Consider what you need the loan for, what type of loan works best, the loan amount, and the interest in your budget.
Next, apply for a loan from various reputable online lenders. Lastly, select the loan offer that looks best to you after reading the contract carefully.
If you want more information on financial planning or are looking for a great online loan, contact us today! We offer great short-term personal loans.