I need to take out a short term loan. What are my options? | money matters
If high inflation is squeezing your budget, you’re not alone. A recent Finder poll found that 36% of Canadian consumers said their main reason for taking out a loan was to cover rent, mortgage, food and transportation bills.
With inflation at 7.6%, many Canadians are turning to loans to pay for their necessities. If you’re in this boat, experts say there are several options.
Jason Heath, Certified Financial Planner at Objective Financial Partners, recommends that Canadians explore zero- or low-interest options first. One of them is to temporarily ask for help from friends or family members.
“This can be an option that will sometimes be interest free, but the downside is that if you are borrowing money that you are unable to repay from a friend or family member, it could put this relationship in jeopardy,” warns Heath.
Or you might consider an introductory offer for a credit card that offers no interest for a certain period, often 12 months. “The risk, of course, is that you add a new credit card, so you’ll have to pay it off before the interest rate goes up, and sometimes that’s how people end up with card balances. persistent credit problems,” says Heath.
Another option, if you own a home with equity, is to get a secured line of credit, says Derek Moran, head of Smarter Financial Planning. “It’s something you can use over and over again as needed for temporary things here and there — it’s kind of like a big emergency fund,” he says.
Heath and Moran agree that high-interest loans, like payday loans, should be one of the last options to consider. While it’s easy to borrow this kind of money, the interest rate is high because it has to be worth the risk for lenders not to look too closely at your overall financial situation.
Heath warns that short-term borrowing can come at a high cost. This can lead to more financial hardship, and it can lead to a bigger problem, like bankruptcy, Heath says.
“Things happen, life happens, but it’s important to try to avoid these types of debt whenever possible.”