As a borrower, your lender’s creditworthiness doesn’t affect you. Even if your lender goes bankrupt, you’ll still owe someone money.

• In the event of bankruptcy, your lender’s loan business will likely be transferred / sold to another lender. You’ll continue to make payments as scheduled, to the new owner of your debt.

This is the cost of borrowing money.

• You'll pay interest regularly to your lender until you've repaid the entire principal.
• Interest is measured as a yearly percentage. It’s charged on the loan's principal you have not yet repaid (what you still owe) - the more you've repaid, the less you’ll pay in interest.
• The higher a loan's interest rate, the more it'll cost you.
• Interest can stay the same until you repay the loan (called a "fixed" rate) or it can change over time (called a 'floating' or 'variable' rate).

This is the amount of time, usually in years, over which you agreed to pay back the entire amount you borrowed (principal).

• The longer you take to pay the principal, the more interest payments you'll make, and the more expensive your loan becomes in the long run.
• The advantage of taking longer is that your principal payments will be smaller and more manageable. This is important if you have a tight budget and cannot afford to make large payments.

You may have to start making interest / principal payments immediately.

• Some loans let you delay repayment - student loans, for example, don't require any payments until 6 months after you graduate.
• Some allow early principal payments, called pre-payments.
• Some let you 'skip' one payment per year without penalty. This is just a payment deferral - you still owe the ‘skipped’ payment.

You and your lender will agree on how often you'll make interest / principal payments.

• Principal is usually repaid in small, regular chunks.
• Payment frequency can be weekly, bi-weekly, semi-monthly, or monthly.
• The more often you make principal payments, the faster you'll pay back your debt and the less you'll pay in interest overall.

Scholarships, grants, and bursaries are awarded based on financial need or academic / sporting / community merit.

To qualify, you must meet certain criteria. Each institution and award will have its own. Universities, colleges, companies, banks, governments, and non-profit organizations offer this type of support for students.

Loans and grants are available from the federal and most provincial governments.

• Grants are non-repayable.
• Government student loans must be paid back. You'll have to start making interest and principal payments on government student loans six months after you graduate, stop studying full-time, or leave school. Before you take on student debt, you should have a plan to repay it.

What do you need in order to qualify?

• Enrollment in a full-time post-secondary program at an approved institution.
• Canadian citizenship, permanent residency, or designated protected person status / registration under the Indian Act.
• You may need to maintain a certain grade across all courses.
• If you're 22 or older, you may have to pass a credit check.
• No missed payments on previous student loans.

When lending money, banks tend to favour programs with higher earning potentials, like engineering, medicine, law, and certain trades.

• You’ll have to pay interest as soon as you get the money, but principal repayment is deferred until you graduate, stop studying full-time, or leave school (there may be a grace period of a few months).

Xork should only consider a bank loan if he is still short on funding, even after looking at his earnings from student jobs, current savings, potential funding from his family, and any non-repayable student assistance or government loans he may have.

While this is an interest-free source of funding, Xork would have to repay the card’s entire balance (what he borrowed) after one month or face extremely high interest rates.

If you need the money right now, a loan may be your only option.

If you don't need the money immediately and can afford to wait a little, consider saving more by cutting down your expenses / getting some extra income, or finding a cheaper alternative. You may be able to reduce the size of your loan or avoid borrowing entirely.

If you know you'll need to borrow in the future, plan ahead and shop around - find the best deals. You may not have this luxury if you're caught by surprise.

You'll need to check with lenders if they are willing to lend you the amount you need.

Lenders will only approve you for as much debt as they think you're able to 'service' (which means making regular payments as scheduled until you repay the entire amount). They will assess your creditworthiness:

• They’ll need some information – your income, expenses, other debts, and any savings / investments you may have.
• Your credit history can negatively affect how much money banks are willing to lend you.

The interest rate lenders charge depends on how credit-worthy you are (based on your credit history / financial situation) and current economic conditions. The lower the interest rate, the less your loan will cost.

Interest on loans is often expressed as a ‘prime rate’ plus a certain percentage, like ‘prime’ plus 2.5%.

• The prime rate is a lending rate that banks use for customers with good credit standing.
• Major Canadian banks tend to keep their prime rates at the same level and change them at the same time, to reflect the current level of interest rates.
• The ‘plus’ percentage reflects your creditworthiness and is also affected by the type of loan you take.

Loan insurance (also called ‘credit / creditor insurance’) can help pay back your loan, should you become unable to make payments due to:

• An accident that leaves you unable to earn income (creditor disability / loss of job insurance)
• Certain severe illnesses (creditor critical illness insurance)
• Death (creditor life insurance)

In exchange for protection, you pay your insurer a monthly ‘premium’.

Xork is young, healthy, has a good education / skills, and has no dependents – it’s likely he will be able to make loan payments on time. Instead of spending money on insurance premiums, he could borrow a smaller amount or pay his loan back faster.

Secured loans are less expensive than unsecured loans.

• You pledge an item you own or are buying, like a car / house / investment portfolio against the loan as ‘security’.
• If you stop making payments, your lender will eventually take ownership of (repossess) the pledged item.

Unsecured loans are not backed by any assets.

• The lender relies on the borrower’s creditworthiness (their ability and capacity to make interest / principal payments on time) to guarantee the loan.
• There is no risk to you that the lender can take away your property if you stop making payments.

When you take out a loan, a variable / floating rate loan will have a lower interest rate than the same loan with a fixed-rate. This is because variable / floating interest rates may change over the loan’s term.

• The risk you take with these loans is that if interest rates rise, your floating rate will also rise. It may even surpass the fixed rate you were offered initially.
• On the other hand, if interest rates fall, your floating rate loan will become cheaper.

Fixed interest is set when you take out a loan. It will stay the same for the loan’s entire term, whether interest rates rise or fall.

Fixed rate loans give you, the borrower, certainty over what rate you’ll pay. In exchange, when you take out a loan, a fixed rate loan will have a higher interest rate than the same loan with a variable / floating rate.

• If interest rates rise, floating rates will also rise. They may even surpass the fixed rate on your loan.

Lines of credit are flexible and quickly / easily accessible in case of emergency.

• A line of credit has a maximum limit you can borrow, like your credit card.
• After a line is established, you can draw money, up to your limit, whenever you please and for any purpose, using a debit card.
• Once you've drawn your maximum limit, you can't borrow more until you pay back part of what you owe - enough to put you under your maximum.
• As soon as you draw on the line, you'll start owing interest. Interest is charged only on the amount borrowed, not the entire limit.
• You can start repaying the principal whenever. The sooner you do, the less you'll pay in interest overall.
• You’ll have to make minimum monthly payments - usually a small percentage of your balance (what you've drawn). They’ll be used to pay the interest owed on your line. If there’s anything leftover from a payment, it will be used to repay the principal.
• Lines of credit tend to last about 10 years before they need to be renewed (this is called their 'term').

Personal (term) loans are best used to make specific purchases, like a computer, mattress, or planet eradicator.

Money you borrow through a personal loan is deposited directly into your chequing account, all at once, and must be repaid within a certain time frame (called the loan's 'term').

• Personal loans are built such that principal payments repay the loan by the end of its term.
• You'll start making regular interest and principal payments shortly after you receive the money.
• They tend to have open pre-payment clauses, which allow the borrower to repay all or part of the principal, at any time, without penalty. The sooner you pay back your principal, the less you'll pay in interest overall - remember, you only pay interest on the principal you still owe.

Xork is no longer enrolled in a post-secondary education program at a qualifying institution. He is not eligible for any student lending products / offers.

Some vendors offer loans to help you finance a purchase. The loan is arranged in the store, when you’re about to buy the item.

You and the lender agree on how often you'll make payments, how long until you pay back the loan (its term), and the size of each payment.

• You pay for the item over the course of the loan’s term – usually 6 to 24 months.
• The cost of borrowing (interest) is embedded in the payments.
• You may also be charged a small fee each time you make a payment.

Since interest, principal, and additional fees are blended into a single payment, comparing the costs of vendor financing to other types of loans can be difficult. The surest way to estimate the total cost of any loan is to:

• Add up all the payments you’ll make over the loan’s entire term, including fees.
• Subtract the item’s retail price (the price you’d pay at the cash register if you did not use a loan).

Monthly lease payments tend to be lower than monthly loan payments, but leasing costs more in the long run.

• Leasing a car, then buying it at the end of the lease is more expensive, over the car’s lifespan, than financing the purchase with a term loan of comparable term and interest rate.
• Leasing a car, then returning it at the end of the lease and renegotiating a new lease on a new car is the most expensive option over time.

A down payment can be made when taking out a lease or a loan to reduce the lease’s monthly payment or the loan’s principal.

• A down payment for a car lease is called a "capital cost reduction".
• You will have to pay sales tax on any capital cost reduction / down payment you make.

At the end of a lease's term, you can either buy the car (at its current value) or return it to the lessor and negotiate a new lease, on a new car.

1. If you decide to buy it, you will pay what’s called the car’s ‘residual value’ - calculated by subtracting the car’s depreciation (how much the car’s value has decreased since purchase – due to use / wear and tear / other damage) from the car's original price.

2. If you do not buy it, what happens next depends on the type of lease you signed.

• Close-end (a more common type of lease): You return the car to the lessor and pay any penalty fees for mileage accumulated above a pre-set limit (driving more kilometers than stipulated in your lease contract) and physical condition (damage to the car).
• Open-end: You return the car to the lessor and they sell it to reclaim its value. If it sells for more than its residual value, the lessor will compensate you for taking good care of the car. If it sells for less than its residual value, you will compensate the lessor.

Whether you lease, borrow, or buy for cash, there are a few things you'll have to consider if you use a vehicle.

• Additional expenses in your budget - including auto insurance, gas, licensing fees, regular maintenance, and possibly repairs.
• Cars depreciate (lose value due to use / wear and tear / other damage) quickly and tend to be replaced every 5 to 7 years. It’s entirely possible that a well-maintained vehicle with modest mileage can last twice as long.
• Whether you have any savings available for a capital cost reduction / down-payment - which will reduce your monthly lease payment / loan’s principal.
• Your ability to make future lease / loan payments for the entire term.

A lease allows you to drive a brand new car every 36 to 60 months (depending on your lease's term). When your lease is over, you can return the car and negotiate another lease for a new car.

A mortgage loan is repayable over a very long time. The amortization period is the amount of time it takes to pay off your mortgage in full.

• The Canadian standard is 25 years.

The time over which you fully repay your mortgage (amortization period) will be divided into smaller chunks, called 'terms'.

• A common term length is 5 years. They can range from 6 months to 10 years.
• Interest rate (the cost of your mortgage), payment terms, and other key features will only be set for the term of the mortgage, not the entire amortization period.
• Longer terms tend to have higher interest rates.
• Once the mortgage’s current term is over, new payment terms must be negotiated. This process is repeated until the mortgage is fully amortized (repaid).
• Before you negotiate new payments terms, you have the option to repay part / all of the remaining principal.

All mortgages are secured loans. The security for the loan is the condo / house you're buying / building.

• Because the home is pledged to the lender, you’ll get a lower interest rate.
• If you stop making payments, the lender can take over (repossess) your condo / house and sell it to get their money back.

When all payments are made and the mortgage has been paid in full, you'll own the condo / house, with no further obligations.

You'll repay a mortgage by making blended principal / interest payments. Each payment will be equal to the last, but may have different proportions of principal and interest.

• Your mortgage interest rate is applied to the outstanding principal. 'Outstanding principal' is the amount of money you still owe.
• At first, the payments consist mostly of interest. As you approach the end of the mortgage’s amortization period, the payments become mostly principal.

When you take out a mortgage, the bank will only lend you enough money to cover part of the home’s purchase price. The part you need to provide from your savings is called a down payment.

• If the purchase price of the home is less than $500,000, the minimum down payment is 5%.
• If the purchase price is between $500,000 and $999,999, the minimum down payment is 5% of the first $500,000 and 10% of any amount over $500,000.
• If the purchase price is more than $1,000,000, the minimum down payment is 20% of the total purchase price.

If you have poor credit history or unstable income, your lender may require you pay for mortgage insurance. If your down payment is less than 20%, you must.

• This insurance does not protect you. It protects the lender in case you can’t make payments.