Getting started with borrowing

Get some tips on responsible borrowing

Credit can be your friend or your foe. When used to your advantage, you can gain a lot of benefits. Used unwisely can lead to problems and stress.

Types of borrowing
Smarter borrowing
How much to borrow
Applying for a loan
Your responsibilities

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Borrowing basics

When managed sensibly, borrowing is a great way to access extra money to pay for things you want or need.

In its simplest terms, borrowing money means entering into a contract where you agree to accept a set amount of money and pay those funds back with agreed terms.

Those terms include details of the repayment, time it will take to repay the funds, payment schedule, and interest you will pay to borrow the money.

Common types of borrowing

Personal loans

Personal loans are handy for unexpected or larger than usual purchases, such as car, recreational vehicle, or debt consolidation. Personal loans will have a significantly lower interest rate than credit cards.

Mortgages

Mortgages are a long-term loan to purchase a home or recreational property. Our mortgage products can be used with home equity to purchase a car or fund home renovations.

Credit cards

These are higher interest lending products that are used for everyday purchases. Many provide additional benefits, such as reward points. Interest is owed on balances outstanding.

Lines of credit

A pre-approved loan up to a certain limit that is available when you need funds, for example for a travel emergency, car repairs, or to take advantage of one-time deals and bargains.

Understanding your credit report

Your credit report determines your credit-worthiness and credit history. Credit checks are conducted by lenders when you are looking to obtain credit. They inform the lender of your past performance in meeting your financial obligations. As one step in the process of conducting a credit check, the lender will contact the local credit bureau.

As a consumer, you have the right to know what information is on your file with the credit bureau. It’s a good idea to check it periodically to be sure that this information is correct. You can visit the Equifax Canada website for your personal, accurate information.

Visit Equifax Canada

Tips for smart borrowing

Spend wisely

Be careful not to let the convenience of credit lure you into unwise spending. Credit isn’t free money and all purchases done using these methods should be completed with caution.

Boost your savings

How do you build savings, have money for emergencies, and pay regular expenses? A Line of Credit is there for when you need it, and doesn’t cost you anything when not being used.

Contribute to your RRSP

Increasing your contributions each year reduces your taxes owed, could provide a return, and sets you up for a better retirement. RRSP loans can be beneficial if paid off quickly.

Take advantage of deals

Those hot deals on big items don’t always fall when they should. It can be advantageous to take out a small loan when it’s on sale, saving you money.

Think long-term

Your big purchases such as a house require a long-term financial commitment. Consider the monthly payments added to your expenses, while still giving yourself some breathing room.

Have a budget

All of life's financial choices can come down to solid budgeting. Having a household budget that grows with your changing needs will make all the difference.

How much should you borrow

There are many considerations before you borrow money, including how much you can afford to borrow. Although everyone's situation is different, a general rule of thumb is to not extend your borrowing over 40% of your gross monthly income.

Only borrowing what you need, not just as much as you can get, is the best way to ensure you don’t overextend yourself. Establishing a budget will allow you to see the whole picture and make it easier for decision-making and long-term planning.