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Personal Loan

A personal loan is the most conventional credit instrument on the market.

How it works

Personal loans mostly go toward financing personal projects. This loan is ‘personal’ in the sense that the loan is not secured by your assets, as in the case of a car loan. Usually, the interest rate is somewhere between that of a line of credit and a consolidation loan, depending on your credit rating, the amount of the loan and the level of risk that your financial institution considers you to be.

One advantage of a personal loan is that it always has to be paid within a certain time limit, usually a maximum of 5 years. This is a good thing because you should want to avoid staying in debt.

Possible solutions

Because a personal loan has a lower interest rate than a debt consolidation loan, which would be between 12% and 14%, it should not be included in a debt consolidation because one of the main goals of a consolidation is reducing the average interest rate on your debts. So, you should take into account the loan’s monthly payments when evaluating your financial ability to consolidate your other debts.

If you cannot consolidate your debts, a personal loan can be included in a consumer proposal. The proposal allows you to lower your total debt, combine all your payments into a single payment, and eliminate all interest charges on personal debts. It also forces you to pay back the amount you and your creditors agreed on within 5 years.

If you do not have enough income to offer a proposal to your creditors, bankruptcy may be easier, cheaper and quicker than the other two options. A personal loan can be included in a bankruptcy.

The sooner you have a clear picture of your personal finances and your options, the better your chances of pulling through.

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