Loans 101: Facts about different loan options

Credit plays an important role in everyone’s finances. Provides access to financing if needed. Whether it is to buy a car, have a financial emergency or just manage your everyday purchases, it is important to know the benefits of different types of loans so that you can choose the best product according to the circumstances or needs that arise.

Personal loans

Personal loans are an ideal solution for large expenses such as home renovations, car purchases or debt consolidation. If the borrower takes out a personal loan, he will benefit from a predetermined one-time loan amount. He thus has immediate access to the entire amount of approved financing.

Personal loans offer many benefits, including:

  • Soft terms : the maturity period of loans to natural persons is generally between 1 and 5 years.

  • Lower payments : Due dates are usually spread over a longer period, making monthly payments more manageable.

  • Uniformity : loans to individuals generally have a fixed interest rate and repayment period, which makes their repayments predictable and facilitates the management of the related budget.

The only limitation of a personal loan is the impossibility of increasing the credit limit if the borrower requests additional funds compared to the original approved value of the loan.

Line of credit

A line of credit is an excellent financial tool to include in your toolbox. Individuals often use them to manage personal expenses, deal with emergencies, or take advantage of reduced interest rates by transferring balances from cards with higher rates.

A line of credit can provide the following benefits:

  • Flexibility : the user has access to funds whenever they want, up to their credit limit.

  • Higher credit limit : Often available if you choose to secure your line of credit with an asset such as your home or investment portfolio.

  • Access to credit available : after paying off the credit limit, the available credit becomes available again.

  • Variable interest rate: this can be beneficial when interest rates are low.

  • Flexible repayment options and reduced installments : the credit line allows you to repay the balance in full at any time without penalties and thus save on interest, knowing that the minimum monthly payment can also be limited to interest.

Although a line of credit offers many benefits, it is important to maintain good spending habits as the availability of credit can lead to overspending.

Credit card

Credit cards are one of the most common and convenient financial instruments today. They are used for everyday purchases of products and services and offer customers the following benefits:

  • Safety : the option to pay for your purchases by card saves you from having to carry large amounts of cash.

  • Practical aspect : Credit cards allow the holder to make purchases quickly and easily, often with just a tap, depending on the price of the purchase.

  • Comfort : Since most credit cards are accepted in all countries, cardholders can travel and use them abroad without interruption.

Despite the convenience and flexibility it provides, it is necessary to treat a credit card responsibly. That’s because most credit cards have higher interest rates than lines of credit or personal loans and may even have annual fees. Paying off your credit card balance in full each month will help you avoid interest charges.

Whether you’re looking to make a major purchase, buy a new car, renovate your home, borrow for an investment or consolidate your debt, we have a loan solution to fit your needs and your budget.

Would you like to discover loan options that you can use? Check out RBC loans and lines of credit today!

This article is intended to provide general information only and is not intended to provide legal, financial or other professional advice. Please consult with a professional advisor regarding your specific situation. The information presented is believed to be factual and current, but we do not guarantee its accuracy and cannot be considered an exhaustive analysis of the topics discussed. Opinions expressed reflect the judgment of the authors as of the date of publication and are subject to change. Royal Bank of Canada and its entities do not promote, either explicitly or implicitly, the advice, opinions, information, products or services of third parties.

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