Borrowing (Credit) in Canada
|In Canada, borrowing money is also known as “obtaining credit”, or “financing”. It is common in Canada to borrow money as a way to achieve important goals like a first home, a car or higher education for a child.|
It’s important to understand the different forms of credit and to select the ones that are right for you, your goals and your financial situation.
How does borrowing money in Canada work?
Borrowing money is a financial arrangement between you and a lender—usually, a bank or other type of financial institution. The terms and conditions to repay the amount you borrowed are documented by all parties. When you borrow money, you’ll be asked to accept certain terms, including the obligation to repay the money borrowed with interest within a set amount of time.
The lender will typically charge interest, which is stated as an “annual percentage rate” or APR. Interest is charged on personal credit because lenders take on a degree of risk that a borrower may not be able to pay them back.
It’s important to note that even though interest is stated as an “annual rate”, interest is charged every day that the borrowed amount is outstanding.
This chart compares the monthly payments and total interests costs for a $6,000 car loan at two different interest rates (APR). As you can see, the higher the interest rate, the higher your monthly payments and the more overall interest you will pay over time.
|Financing a used car over 4 years||At 12% APR||At 6% APR|
|Your monthly payment:||$105.37||$93.96|
|Total interest over 4 years:||$1,057.76||$510.08|
|With the lower APR, you save:||$547.68|
The record of an individual’s ability to manage credit and debt. This information is held in a centralized database by a company known as a credit bureau. Financial institutions consider the credit history of borrowers when approving them for credit cards, mortgages, loans and lines of credit.
The amount of money charged to borrow money. This amount accrues on the balances owing on credit products such as loans, lines of credit and credit cards.
The cost of borrowing money over one year, including interest charges.
To learn more about money in Canada, visit a TD Canada Trust branch.
Come in and talk with us today.