Types of Credit
A loan is a fixed lump sum that you borrow all at once and must repay on a specific schedule, for a specific amount of time with interest.
Various types of personal loans are available:
- open credit (like a credit card)
- fixed credit (like a car payment)
- mortgages (to purchase a home)
- leases (paying for the use of something like a car for a specific length of time)
To learn more, visit the Personal Loans page on the Government of Canada’s website.
A payday loan is a short-term loan for a relatively small amount of money at a very high interest rate. Payday loans are promoted as a way to help cover expenses and tide you over to your next payday. Although a payday loan may seem convenient, they’re an extremely expensive way to borrow money.
To learn more, visit FCNB’s Payday Loans web page.
Lines of Credit
A line of credit is a type of pre-approved loan that allows you to borrow money when you need it, typically at a lower interest rate. Usually, you have a minimum monthly payment and a due date to make your payment each month. You may also be allowed to make interest-only payments, but this means you are not paying any of the principal balance that you owe, just the interest that has accumulated on your purchases.
To learn more, visit the Lines of Credit page on the Government of Canada’s website.
A credit card is a card issued by a financial institution or financial service company that lets you buy items "on credit." Paying with a credit card means you get the item immediately without having to actually spend your money at that moment. Instead, the financial institution pays the seller when you purchase the item, and you repay the financial institution later.
Buy Now Pay Later (BNPL)
This payment option is gaining in popularity in Canada. Through a BNPL service provider, you purchase the product or service immediately, usually securing with a down payment, and pay off the balance in installments over a predetermined length of time and at a pre-set payment amount. BNPL programs operate much in the same way as installment loans, and the range of products and services you can buy through these programs has been expanding to include things like food and clothes in addition to traditionally larger purchases, like home appliances and furniture. BNPL services are usually offered either online when making the purchase or they can be linked to credit card purchases.
To learn more, visit the Buy Now Pay Later page on the Government of Canada’s website.
In the event that you are unable to make payments on your debts due to illness, accident or death, creditor insurance may continue to make the payments you would otherwise miss. Usually this insurance product covers one specific debt, such as a mortgage, line of credit, or a loan.
To learn more, visit FCNB’s Creditor Insurance web page.
Comparing Rates: AIR vs APR
When considering the cost of borrowing a loan, it is important to understand the difference between AIR and APR. AIR stands for Annual Interest Rate and it represents the percentage of interest you will be charged on the loan amount. APR stands for Annual Percentage Rate and includes the percentage of interest plus any additional fees. Additional fees could include costs like broker fees, loan insurance, closing costs on a house sale, or rebates. When comparing loans, the APR is a more accurate calculation of what borrowing will ultimately cost you.
A car loan of $50,000:
- Annual interest rate (AIR) 5%
- No additional fees added to the loan
- Repayable in 60 equal monthly payments of $943.56
- Total payments $56,613.70
- Total cost of credit $6,613.70
- Annual percentage rate (APR) = 5%
A car loan of $50,000:
- Annual interest rate (AIR) of 5%
- $5,000 in non-interest finance fees (e.g. GAP insurance and extended warranties)
- Repayable in 60 monthly payments of $1,037.92
- Total payments $62,275.07
- Total cost of credit $12,275.07
- Annual percentage rate (APR) = 8.44%
For more information on the APR calculation please reference the Cost of Credit Disclosure and Payday Loans Act