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8 borrowing options

​If your credit rating is good, you’ll likely have several options for borrowing money.

1. Credit cards

With credit cards, there are hundreds of options to choose from. The features offered and the interest rate will vary from card to card. If you pay off the balance in full each month, you won’t pay any interest.

 2. Overdraft protection

This covers a short-term cash shortage in your bank account. It also covers NSF (not sufficient funds) cheques. You may pay a monthly charge for this service, or you may pay only when you need to use the service. You will also pay interest on the money you borrow. These interest charges can be high.

3. Personal loan

You can get a term loan or line of credit from a bank, trust company, credit union or finance company. With a term loan, you repay the loan over a fixed period of time at a fixed rate of interest. With a line of credit, you’re pre-approved to borrow up to a set limit. You can borrow and repay at any time, as long as you make the minimum monthly payment.

4. Mortgage

This is a long-term loan you get to buy a home. With a mortgage, interest rates are lower because your home secures the loan. You have different options for how and when you repay the loan.

5. Home equity loan

You can borrow against the money you have invested in buying your home. The more you’ve paid down on your mortgage (your equity), the more you can borrow. Again, interest rates are often lower because your home secures the loan.

6. Lease

A lease is a long-term rental on a product, such as a car. It works a bit like a loan. You make regular payments at a fixed rate of interest. The payments are usually lower than payments on a loan for the same term. The big difference is that at the end of the lease, you don’t own the product. But you may have the option to buy the product for what it is worth at the end of the lease.

Many leases set special conditions you must meet. For example, a car lease can limit how many kilometres you can drive each month.

7. Borrowing from your RRSP

Through Canada Revenue Agency’s Home Buyers’ Plan and Lifelong Learning Plan, you can borrow money from your RRSP without paying tax to buy your first home or pay for education. However, when you borrow from your RRSP, the money you take out of the plan won’t be growing tax-free for your retirement and you will have to pay it back. 

8. Borrowing against your RRSP

In some cases, you may be able use money in your RRSP as collateral for a bank loan. Make sure you get expert advice from a trustworthy source before you go ahead. If you don't follow the rules, you’ll have to pay tax on the RRSP money you use as collateral.

 

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