Looking to take out a loan? Responsible borrowing can be a good thing, but sometimes loans can get you in trouble. Before you make a decision, here are some things to think about.
Things to think about before you take out a loan
1. Think long-term. Review your budget and decide if you need the money now or if it can wait until you’ve saved for it. If it’s a need, ask yourself some questions. How long will it take for you to pay it back? Can you afford the payments? What if interest rates rise?
2. Is it good or bad debt? Good debt is an investment in something that creates value or produces more wealth in the long run (like a loan for a renovation or a student loan to improve your job prospects). Bad debt is borrowing to buy something that goes down in value or that you can’t repay in full, resulting in more interest and debt (like going into debt for a vacation or for an expensive item you can’t repay by the billing period).
3. Explore your options. Shop around and compare different loans. You’ll want to consider the features, advantages, and disadvantages of different types of credit.
4. Understand the total cost of the loan. When you compare the costs of different types of credit, compare the annual percentage rate (APR), not just the advertised interest rate. Ultimately, you want to know how much the loan will cost you with interest plus any fees or penalties. Learn how to understand the true cost of your loan.
5. Work with a legitimate and licensed lender. Verifying that you are borrowing from a law-abiding and regulated business may be the most crucial step in the loan process. Learn more about the risks of working with illegitimate lenders and how to tell the difference.
Where to go for more information
Financial advice isn’t something we can help you with directly but there are other options to consider. The Financial Consumer Agency of Canada has tons of information to help you make informed borrowing decisions.
You may also be interested in speaking to your financial institution or a financial advisor to see if they can offer you personalized advice on your financial situation.
About Consumer Protection BC
We’re a not-for-profit provincial regulator. The laws we oversee capture your rights when it comes to credit reporting, debt collection, payday loans, high-cost loans, and certain aspects of debt repayment services. Find out more about us and the other industries and transactions we oversee by exploring our website.
Learn more about your rights when it comes to debt and borrowing.
More debt and borrowing resources
Managing debt
How to make a plan to manage your debt
Comparing different debt relief options
The impact of debt on your credit report
How to improve your credit score
How to build healthy financial habits
Debt collection
How to stop collection calls
What to do if it’s not your debt
The rules debt collectors must follow in BC
How to dispute a debt
Borrowing wisely
Things to think about before you take out a loan
Learn how to understand the true cost of your loan.
The rules for payday lenders in BC
The risks of borrowing money from unlicensed lenders
Buy now, pay later plans: what you need to know
Tell us what you think for a chance to win!
The information above is part of a consumer education initiative on debt and borrowing in BC and we want your input!
By completing the survey, you will be entered to win one of two $300 prizes and you’ll support consumer education in the province. Your feedback will help us fine-tune our educational resources so we can continually improve and help more people make informed debt choices in BC.
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