3. Know What Is and Isn’t a Competitive Interest Rate
Websites like ratehub.ca publish the loan interest rates offered by different financial institutions and online lenders (be sure to check Canadian sites, not American ones). The rates vary from lender to lender, but this will give you a sense of the rate you may be offered by your financial institution. You can also ask your lender of choice to provide you with the rates on their loan products; however, they won’t be able to quote you an exact rate until you have given them a complete overview of your financial situation and allowed them to access your credit report. That’s because the best and lowest interest rates are reserved for the people with the best credit ratings. The lower your overall credit rating, the greater the chance that you’ll run into trouble repaying what you borrow. A lender incorporates this into the rate they offer you.
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4. Determine Your Budget Before You Apply for a Loan
The last step before speaking with your financial institution is having a good understanding of your income and expenses (monthly, seasonal, and irregular) as well as knowing how much of a monthly or bi-weekly loan payment fits your budget. It’s a common mistake to be overly aggressive in wanting to pay off your debt quickly and have a monthly or bi-weekly payment that takes too big of a bite out of your pay cheque. This often leads to feeling forced to use your credit cards to cover off shortfalls and unforeseen emergencies, which defeats the purpose of consolidating your debt. Build a budget that works to get the most value out of the money you earn and manage your expenses effectively.
5. Applying for a Consolidation Loan
You’ve done the work and now have a more complete understanding of your credit report, your finances, and the documentation your financial institution needs from you. All that’s left is to contact them. When speaking with the lender, they may offer you additional products like loan protection insurance. This is not a mandatory product and will add cost to your loan; the best loan protection insurance is having an emergency savings fund to manage life events. They may also recommend a line of credit instead of a loan. A line of credit works the same as a credit card – it has a maximum limit, but as long as you maintain the minimum monthly payment, the account stays open. If your goal is to get out of debt, stick with a debt consolidation loan.
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If the rate offered doesn’t seem competitive with the information you’ve gathered, share your thoughts with the bank representative and let them know you were looking for a lower rate. It never hurts to ask for a lower rate, and you may be pleasantly surprised when you do. If they aren’t willing to give you a better rate, you may be better off applying for a loan elsewhere.
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