Experts recommend Canadians save 3 to 6 months’ worth of their living expenses. This is a good number to have when building an emergency fund.
Unfortunately, a lot of people do not prepare enough for the future when it comes to finances. This can leave you in a position where you need financial help.
If that is the case, you need to know about personal loan interest rates. This guide will tell you everything you need to know about interest rates and how to pay them.
Keep reading to find out what to expect when it comes to personal loan interest rates.
What Are Interest Rates For a Personal Loan?
A personal loan is a specific kind of loan a lot of people use any emergencies. Personal loans are a kind of closed-end credit that has monthly payments.
You will get the full loan amount so that you can pay for what you need. You then have a payment plan of a certain amount of time to pay back the loan amount.
Depending on the loan, this could take three or five years to pay off. When it comes to interest rates, this is the percentage of the amount you have borrowed or the principle.
Interest rates will be different depending on the type of loan and the loan provider. Here are some examples of personal loan interest rates to expect.
There are three different things that apply to a loan’s interest rate. If you want to get a loan, you will have a better chance if you have a good credit rating.
Keep in mind that this only applies to loan providers that look at credit. Some providers don’t check your credit history so that everyone has an equal opportunity.
Lenders have the option of considering different aspects of the borrower. This could include things like status, income, and the likelihood of repayment.
These aspects can then impact how much the interest rate is. This is because these details tell lenders if you have a good chance of paying back the loan.
The Length of the Loan
There is another important factor to consider if you want fast loans in Canada. There are long-term and short-term loans for different purposes.
Long-term loans are more profitable for lenders for a variety of reasons. Because of this, interest rates are often going to be lower for long-term loans.
This means that you will be paying back the loan over a longer period of time. On the other hand, you would most likely have higher interest rates if you were paying back in a short amount of time.
You should also be aware of prepayment penalties lenders may have. These are penalties that apply if you pay off your loan too quickly.
The Cost of Borrowing
Lenders often have to borrow money to supply it for loans. Because of this, the lender is often paying an interest rate as well.
The interest rate the lender is paying will add to your interest rate. If the cost of borrowing for the lender is high, your interest rate is also going to go up.
This is an aspect of interest rates that you do not have any control over.
Unsecured Vs Secured Personal Loans
There are a lot of kinds of loans, making it complicated to understand. One thing you need to research is unsecured and secured personal loans.
An unsecured personal loan is not backed up by an asset. Because of this, the interest rate is often going to be a bit higher to protect the lender.
A secured personal loan is backed up by an asset of value. This is something that the lender can take possession of if you fail to pay your personal loan.
This could be something like a car or your house, depending on the loan. This is also called collateral to show that you are serious about paying your loan.
How to Plan For a Personal Loan Interest Rate
There are a lot of instances where you may need to get a personal loan. Sometimes this is unavoidable if you do not have savings or an emergency fund.
For instance, you may have broken your leg and have to pay medical bills. Or your car may need a new engine so that you can get to work.
It is important to plan for personal loan interest rates in this instance. You are borrowing money, and you will have to pay more back than you received.
To prepare for this, you need to evaluate your current finances. Will you be able to make the required monthly payments?
You should also have a backup plan in case you can’t make the payments. Maybe you have a family member who can loan you the money or you can pick up extra shifts at your job.
These are things that you need to consider before making your decision. You should never take on a personal loan unless you are certain you can pay it back.
Understanding How Personal Loan Interest Works
A lot of Canadians aren’t prepared for emergency expenses. Because of this, you need to understand personal loan interest rates and what they mean.
Interest rates can be impacted by the length of the loan payment plan and the type of loan. It also depends on the cost of borrowing for the lender.
Are you interested in getting a personal loan? Contact us today at Eastern Loans to apply for a loan.