Why Canadians get loans: Cars, debt and other reasons

People can use loans for a variety of purposes, from settling debts to purchasing the home of their dreams.

These loans will produce different types of debt, from student loan debt, mortgage debt, to consumer debt – and not all of these debt types are equal.

Canadians owed $1.78 for every dollar they earned in 2018 according to Hoyes, debt relief experts. Household and mortgage debt in 2018 increased 3.5% and 3.2%, respectively.

Loans can be used to fund a bevy of essentials, including post-secondary education, or a vehicle needed for work. How debtors plan to handle that debt during the repayment period will dictate how stressful the debt load is, and how much it will cost them in interest over time.

Vehicles

There are specific loans designed to finance the purchase of various vehicles, from cars to RVs to boats. Car loans, for example, are secured using the vehicle you’ve purchased, meaning that the lender can repossess it if you become delinquent on your payments. Secured loans usually come with lower interest rates.

Of course, you can use an unsecured personal loan to pay for anything, including vehicle purchases.

Debt consolidation

People will commonly use personal loans to consolidate their various debts into one place, big or small. Multiple loans, credit card debts from different cards and private debts all will have their own interest rates, making repayment rather confusing at times.

If you combine all of your various debts into one place, you'll have one interest rate and one single location to make your monthly payments, effectively simplifying your debt load. The total dollar value of all your debts may look intimidating at first glance, but it's better than overlooking the reality of individual debts in disparate locations.

Mortgage

Mortgages are major loans used by homebuyers to help purchase a home. Mortgage loans are secured against the property being purchased, which can be repossessed if you stop making payments.

Banks and private lenders provide mortgage loans, charging interest over a set time period, most commonly 15 to 30 years.

Renovations

Personal loans can be a good option to finance home remodeling or major renovations if you need them on your home. Essential renovations could include the installation of a new roof, siding or insulation repair, or adding energy-saving features like solar panels or new windows.

You could even use a personal loan for superficial upgrades like kitchen updates, adding a swimming pool or landscaping your property.

If you don’t have equity in your home as of yet, or don’t want to borrow against your property with an equity line of credit, a personal loan could be your next option.

Finance a wedding or funeral

Weddings are expensive, and likewise, so are funerals! Some of the biggest events of our lifetimes can be financed using a personal loan. There are specific loans designed for both weddings and funerals, but they are usually just personal loans veiled using different terms.

Pay for big ticket items like venue bookings, wedding dresses, caskets and cover smaller expenses like food and flowers or services like photographers, transportation and staffing.

Personal loans won’t dictate where the money goes, whereas specific wedding or funeral loans may have fund limitations.