When you consider Canada and how it’s established sustainable fair trade with so many countries, it’s economy has come a long way. One of the downsides that has come with all of the positives is that a lot of debt has been acquired along the way. Both personal and business ventures have benefited from a variety of types of loans. Sometimes, these loans are difficult to pay back as they are spread out. One way to make things easier is to pay off a loan through a debt consolidation loan. If you are interested in paying off your loans with a fast online debt consolidation loan, Smarter Loans can help you out.
The way that a debt consolidation loan works is essentially that all of the various loans are combined into a single loan. Then a lender offers you a loan to pay that loan back on a single monthly repayment. Smarter Loans has developed an online tool which makes comparing providers significantly easier. With Smarter Loans, scroll down and you’ll be able to access the online directory of reliable providers where you’ll be able to easily select a fitting provider based on your circumstances and apply to them directly.
Click “Apply Now” once you’ve identified a provider that you would like to proceed with. At that point, simply click “Apply Now” to proceed to fill out an application to qualify for the loan. Otherwise, select the pre-application and Smarter Loans will have you connected to a suitable provider.
We can help connect you with the top debt consolidation loan providers in Canada.
In today’s environment, there are many forms of debt available to the average person. These debts can be short-term such as credit card bills, medium term such as car loans or long-term such as mortgages on residential properties. Given this range of debt that can be taken out – often simultaneously – it can sometimes get overwhelming to monitor and track the payment dates and amounts due of each debt component. To this end, one major option used by a significant number of Canadians looking to reduce their periodic payments and/or number of creditors is a debt consolidation loan.
In a nutshell, a debt consolidation loan involves a customer taking out one large loan to pay off multiple small debts at once. These loans are typically extended by financial institutions as personal loans that cover all outstanding debts of a person. Once the borrower has used the immediate funds to pay off his/her creditors, they then pay back the financial institution in periodic principal and interest payments just like a regular loan. In essence, the smaller debt components get accumulated into one large debt piece that is typically offered at a lower rate of interest, thus providing both financial and efficiency benefits.
It is important to remember that there are two types of debt consolidation loans: secured and unsecured. Secured loans require the borrower to put up some personal asset as collateral, which can be claimed by the bank in the event of default. Unsecured loans, on the other hand, are not secured on any personal asset, implying a higher risk for the financial institution. This higher risk translates into a higher rate of interest as well to compensate the lender for the additional risk undertaken.
Thus, when lenders evaluate potential borrowers who are looking to take out a debt consolidation loan, there are four main criteria that they would use to make their decision:
Whether the loan is secured or unsecured, this is the key metric used to determine the borrower’s financial capabilities to regularly meet interest and principal repayments as they come.
As with any other personal loan, a higher credit score offers the benefits of more attractive pricing terms to the borrower as the lender has greater confidence in repayment based on historical precedent.
A secondary, but equally important consideration is the borrower’s current financial stability. If the borrower can show predictable expense patterns and/or additional sources of income, they are more likely to be approved for the eventual debt consolidation loan.
Though most debt consolidations are done on an unsecured basis, offering equity collateral can significantly increase the borrower’s chances of approval and getting a lower rate of interest on the debt consolidation loan. This does have its own risks as explained later in this article.
In terms of what type of debt can be classified as eligible to be consolidated, there are certain parameters set out that vary by financial institution. As a general rule of thumb, the following types of credit are generally able to be merged together as part of the debt consolidation loan:
Credit Card Debt: In Canada alone, there are 3 billion credit card transactions made every year. An Equifax report stated that these originated from 31 million individual accounts, of which 30% didn’t pay back the credit card balance at the end of each month. Annually, this is approximately $7 billion just in interest for late payments.
Public Utility Debt: Public utilities include water (hydro), electricity, natural gas, telephone services and other essentials provided by a specialist provider. Typically, these companies charge the consumer at the end of each month with payments due within ~2 weeks. The debt from these can be bundled into a debt consolidation loan.
Other Consumer Loans: Broadly speaking, consumer loans are debts taken out for a multitude of purposes including auto loans, student loans, and other personal loans.
There are several advantages to obtaining a debt consolidation loan. However, most borrowers that consolidate their debt are primarily looking to decrease the interest payments they make per month. To do this, they rely on the simple fact that debt from credit cards and other consumer loans as mentioned above typically has a higher interest rate tag attached to it. For example, credit cards charge 8-12% on the low end and 23% on the upper end for payments that are made past the due date.
This means that if the borrower is able to receive the debt consolidation loan at a reasonable rate provided by retail banks, he/she can stand to save up to 5% or more on each payment. In other words, on every $1000 of debt owed, the borrower is now in a position to save $50 by way of lower interest payments – even though the principal has remained exactly the same!
There are several pros of debt consolidation loans when compared to alternative forms of debt reduction. While the main attraction remains the lower interest rate as explained above, some of the secondary advantages are presented below:
With a debt consolidation loan, the credit rating remains protected as the principal is still being paid back in full to all creditors. In fact, with a disciplined repayment process, the credit rating could actually even improve.
While credit cards, utility bills, student loans and other forms of short-term debt come with a short deadline for repayment, loans provided by financial institutions are generally longer, which means that coupled with the lower interest payments, the overall monthly repayment amount is substantially lower.
With all payments being bundled into one single payment to one single lender, the borrower streamlines the periodic repayment process to ensure that no payments are missed or forgotten inadvertently.
As creditors are all paid out right after the issuance of the personal loan, there is no additional pressure to pay back on accelerated timelines.
While debt consolidation loans offer a host of advantages, there are some caveats that need to be kept in mind:
1. Principally the Same: Only the interest amount is liable to change post-debt consolidation. The principal amount remains exactly the same.
2. Keep the Bad Habits at Bay: Often, borrowers fall into a false sense of security after debt consolidation when they see the additional capacity under the credit card. This could lead to overspending again, which brings them back to square one.
3. Security Troubles: A secured loan where the borrower puts up collateral and fails to pay may lead to reclamation of the asset by the lending institution, which tends to be much less forgiving of such instances than credit card or utility companies, who can earn money off of the late payments.
A comparable debt reduction technique is debt restructuring wherein creditors agree to forgive a portion of debts in exchange for prompt payments of the remainder. The main differences between debt consolidation and a debt restructuring is explained below:
The debt to income ratio is one of the primary indicators used by economists to evaluate the level and sustainability of household debt within an economy. Essentially, it shows the level of debt payable for each dollar of income earned i.e. a ratio of 150% would imply that for every $1 that a borrower earns, he/she has to pay back $1.50. In Canada, this number is amongst the highest in the world of all developed economies, currently standing at 176.2% as of January 2019. Of this debt, a report released by the CMHC in 2017 stated that non-mortgage debt (comprised of auto loans, credit cards, and all other credit) accounted for 19% of total debt outstanding.
In such an environment, debt consolidation loans can often be one of the main tools available to consumers looking for debt relief, but hesitant to impact their credit score.
These companies are recognized for their excellent service, product offering and financial literacy education for all Canadians.
