Different Types of Loans You Can Get

There are many types of loans available in Canada, and the right one depends on what you need the money for, how much you want to borrow and whether you can provide collateral.

Common options include personal loans, mortgages, auto loans, student loans and secured loans.

KOHO Cash Advance

KOHO Cover is not a traditional payday loan. It is a cash advance designed for Canadians who need a smaller amount of money to cover short term expenses.

With KOHO Cash Advance, you can:

• Get up to $500 as an instant cash advance (amount depends on eligibility)

• Pay no interest on the advance

• Avoid a credit check

• Repay automatically once you add money or get paid

You subscribe to the Cover bundle for a low monthly fee, and in return you get the advance feature plus extras like a credit report, financial coaching, and priority support.

Personal Loans

A personal loan gives you a lump sum that you repay through regular payments over a set period.

You may use one for:

• Debt consolidation

• Home repairs

• Emergency expenses

• Large purchases

• Medical or dental expenses

Personal loans can be secured or unsecured.

Secured Loans

A secured loan requires you to provide an asset as collateral.

This could include:

• A home

• A vehicle

• Savings or investments

Because the lender has collateral, secured loans may offer lower interest rates.

The risk is that the lender may be able to take the asset if you fail to repay the loan.

Unsecured Loans

An unsecured loan does not require collateral.

Approval is usually based more heavily on factors such as:

• Credit score

• Income

• Debt

• Payment history

Unsecured loans may have higher interest rates than secured loans because the lender takes on more risk.

Mortgage Loans

A mortgage is a loan used to purchase a home or other real estate.

The property acts as collateral for the loan.

Mortgage payments generally include principal and interest and are spread over a long amortization period.

Mortgages can have fixed or variable interest rates.

Auto Loans

An auto loan helps finance the purchase of a vehicle.

You usually repay the loan through regular monthly or biweekly payments.

The vehicle often acts as collateral, which means the lender may repossess it if you stop making payments.

Student Loans

Student loans help cover education-related expenses such as:

• Tuition

• Books

• School supplies

• Living expenses

Canadian students may have access to government student loans as well as loans or student lines of credit from financial institutions.

Government student loans may offer different repayment terms and assistance programs than private loans.

Home Equity Loans

A home equity loan lets homeowners borrow against some of the equity they have built in their property.

You receive a lump sum and repay it over time.

Because the home secures the loan, failure to repay can put the property at risk.

Lines of Credit

A line of credit works differently from a traditional loan.

Instead of receiving one lump sum, you receive access to a borrowing limit.

You can borrow what you need, repay it and borrow again.

Interest is generally charged only on the amount you use.

Debt Consolidation Loans

A debt consolidation loan combines multiple debts into one loan.

For example, you might use one loan to pay off several:

• Credit cards

• Personal loans

• Lines of credit

This can simplify repayment and may reduce your interest costs if the new loan has a lower rate.

Payday Loans

A payday loan is a small, short-term loan that is generally repaid around your next payday.

They can be easy to access but are one of the more expensive borrowing options.

Because of their high cost and short repayment period, lower-cost alternatives should usually be considered first.

Cash Advances

A cash advance provides access to a smaller amount of money for short-term needs.

The cost depends on the type.

For example, a credit card cash advance may charge:

• A transaction fee

• Immediate interest

• A higher interest rate than regular purchases

Other cash advance products may instead charge a subscription or membership fee.

Business Loans

Business loans are designed for business expenses rather than personal use.

They may be used for:

• Equipment

• Inventory

• Expansion

• Payroll

• Working capital

Approval may depend on the business's revenue, credit history and financial performance.

Fixed-Rate vs. Variable-Rate Loans

Loans can also differ based on how interest is charged.

A fixed-rate loan keeps the same interest rate for a set period.

A variable-rate loan can change as market interest rates change.

Fixed rates provide more predictable payments, while variable rates can become cheaper or more expensive over time.

Which Type of Loan Should You Choose?

Choose a loan based on what you need the money for and how comfortably you can repay it.

Before borrowing, compare:

• Interest rate

• Fees

• Loan term

• Monthly payment

• Total borrowing cost

• Whether collateral is required

• Penalties for missed or early payments

The cheapest loan is not always the one with the lowest monthly payment. A longer repayment period can lower your monthly cost while increasing the total amount of interest you pay.