If you’re like most people, you aren’t comfortable talking about your finances. At a time when Canadians are carrying record levels of debt, that’s no surprise.
It also doesn’t help that many of us don’t have a grasp of basic financial concepts. That makes it tough to deal with banks or credit unions. They don’t take the time to explain financial terms, so talking to them can be intimidating.
It doesn’t have to be that way. If you take the time to learn a few basic concepts, you’ll find that financial institutions aren’t so mysterious after all. If you’re looking for a loan, here’s what you need to know:
Principal – the amount that you are borrowing.
Interest – what the financial institution charges you to borrow their money. It’s a percentage of the principal, typically four to ten percent.
Compound interest – interest calculated on the amount you still owe, which is the total of the unpaid principal and the monthly interest that has accumulated on it.
Loan term – the length of time a lender gives you to repay the loan by making regular payments toward the principal and interest.
Before the bank or credit union gives you a loan, they’ll want to know if you can repay it:
Credit – your record of repaying loans on time and in full. This determines how much the bank is willing to lend you, and the interest they’ll charge you for it.
Credit limit – the amount of money that a bank is willing to lend you.
Credit report – companies called credit bureaus track your borrowing history. Consistently repaying your loans without missing any payments improves your credit score, and your ability to borrow money.
For some loans, the financial institution will want to know a few other things too, including:
Budget – a plan detailing your revenue, or the amount you earn each year; and your expenditures, or how much you’re spending on such things as rent, living expenses, or car payments. This will help them better assess your ability to repay your loan.
Collateral – the assets a borrower owns, such as a house or investments, that can be declared as security in the terms of the loan agreement. That means the financial institution can seize those assets if you can’t repay your debt.
These are the basics. Understand them, and you’ll be able to negotiate a loan with confidence when you sit down with your bank manager.
But what if they don’t want to lend you their money? Maybe you’re new to Canada and don’t have a credit history. Or maybe you have a poor credit record because you ran into trouble in the past.
That’s where we come in. ACCESS can set you up with a microloan to help you launch your own business or get a good job. If the banks won’t help you, maybe we can.
Give us a call. Let’s talk.
Neil Macdonald is a freelance writer based in Toronto. He has worked in the not-for-profit field for several years, and provides marketing and communications support to small businesses. Neil has been a volunteer with ACCESS since 2015.