5 Different Types of Personal Loans That Are Available in Canada

Personal loans are generally defined as lending arrangements that rely heavily on the lender’s perception of the personal integrity of the applicant and the ability to repay the loans according to the terms and conditions stipulated by both parties. There are in fact several types of persona loans that you can seek. By knowing more about each kind of personal loan, you are in a better position to determine which approach is best in your situation.

The Title Loan

For people who need quick cash and currently have lower credit scores, title loans are an option to consider closely. These are typically short-term loans that do require a title to a vehicle or similar property to be held in check. Once the balance is settled in full, the title is returned to the owner.

Keep in mind that Canadian finance laws do not currently allow a debtor to secure a title loan unless the title is clear of any other claims. If you are still making payments on your car loan, that vehicle’s title cannot be used to secure this type of financing.

The Secured Personal Loan

Many lenders will work with you if you can pledge an asset that serves as security for the amount of money you borrow. This form of personal loan allows you to make purchases and use whatever you buy while the debt is settled. Car loans are a prime example of this type of personal loan. The bank will consider the vehicle to be security until the loan is paid in full. At that point, all claims to the car’s title are released and you can do with the car as you wish.

The Unsecured Personal Loan

People who have excellent credit ratings and histories are sometimes offered what’s known as unsecured personal loans. There is no need to pledge any type of asset or collateral to obtain the financing. Your sterling financial track record is all it takes for the lender to decide you are worth the risk.

While having excellent credit does mean you don’t have to consider options like title loans, do keep in mind that the rate of interest on an unsecured loan may be a little higher than the rate assessed on a secured loan. While the lender looks upon your high rating with favour, the slightly higher interest rate does help to lower the risk of doing business with you.

The Consolidation Loan

This type of personal loan is ideal for someone who would like to reorganize his or her personal debt. The goal is usually to combine multiple debts into one monthly obligation that is easier to manage. It’s not unusual for this type of personal loan to also come with an interest rate that’s more competitive than the rates applied to those individual debts. You also have a good chance of locking in a monthly installment amount that’s a little lower than the total of all those individual debts. Remember that if you choose this approach to managing your current debt, avoid incurring new debt if at all possible.

The Angel Investor Loan

In this scenario, you want to start a small business but you don’t qualify for traditional business loans. An angel investor steps in and chooses to provide the funding based on the fact that you have a strong personal credit rating and that you have a plan to make the business profitable within a reasonable period of time.

Angel investors often provide terms that rival those associated with personal loans provided by banks. They certainly offer more competitive terms and most types of title loans. If your plan is to launch a business and use your personal credit as the means to finance the operation, this is definitely an avenue you want to consider.

Always compare and contrast all your options for financing before settling on a method. Know the benefits and the possible drawbacks associated with each one. Doing so will increase the odds of selecting the right financing approach and being able to accomplish whatever you have in mind.

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