Canadian bills

Open Credit Loans vs. Fixed Credit loans

urLoanTM is all about helping Canadians from coast to coast improve their financial knowledge. When you seek a term loan from urLoanTM we want you to understand its impact on your finances, your monthly budget, and ultimately use it as a tool to improve your financial health. Prospective borrowers approach us daily wanting to compare our loans to their credit cards, this is a fair comparison if you plan to pay off your credit card balance in full each month, but if you plan to run a balance and there is no end to sight in paying your card off, then this comparison is not going to get you anywhere. This article about the pros and cons of open vs. fixed credit loans will explain why.

Open credit loan products are typically offered by the large Canadian banks and credit unions. A line of credit and credit card are examples of open credit products. These products are not typically offered to individuals with poor credit, although they can quickly cause you to have poor credit if you are not managing them properly! With an open credit product, your total cost of borrowing is impossible to calculate up front, because the length of time your loan is open is unknown. For example, if you have a credit card with a 19.99% interest rate and hold a $1000 balance for a year, you would pay $199.99 in interest on the card for 1 year; however, if you only paid your minimum monthly payments and maintained your balance for longer than one year, you would most definitely be paying more. With an open credit product, the onus is on you to manage your balance and spending and pay down your principal, so that you can continue to be extended additional credit from your bank. Do you have control over your monthly household budget and spending? Then an open credit product could be a great solution for you.

Fixed credit loan products are also offered by the large Canadian banks, but also alternative lenders such as urLoanTM meaning credit score is not everything! Fixed credit loan products can sometimes be more expensive then open credit products but can also be more affordable if you find your spending is out of control and sometimes may be your only option. With a fixed credit loan product, you know your total cost of borrowing when you enter into the loan and you know your repayment schedule typically in advance. With this payment schedule, you pay a large pre-determined amount of principal with each of your scheduled payments, reducing your principal balance with each payment. A positive then is therefore that you have an end in sight with your fixed credit loan, as long as you continue to make your scheduled payments, your loan will ultimately be entirely paid off. This will give you the opportunity to borrow again, and at reduced interest rates and build your credit if the lender you are borrowing from reports to the credit bureaus. Let’s use an example, if you borrow the same $1,000 from urLoan at the highest posted rate of 46.95%, you will pay approximately $230-$240 dollars in interest over 1 year, but that is all you will pay. Not much more than you would pay to the same credit card company if you maintained a $1,000 balance for one full year at 19.99%.

Many Canadians are sensitive to interest rates, and rightfully so, but you need to understand the underlying credit product that you are getting yourself into and whether its fixed or open credit, as this will ultimately impact your cost of borrowing more than the interest rate itself, as we’ve shown above. If you are in a situation where your credit cards are constantly in arrears for several months at a time or have maxed out their credit cards. Take one look at how much in interest you are paying your credit card company and more importantly when was the last time you paid down your credit card balance? No end in sight? Perhaps a fixed term loan from urLoanTM is a realistic option after all.

If you are interested in learning more, please don’t hesitate to contact our Loans Department at 1-844-350-5626. Our loans officers are experienced and can walk through your options with you. Ultimately, when you enter into a term loan with urLoanTM it needs to work for you.