Loans and lines of credit FAQ

What is a loan?

A loan is when a lender, such as a financial institution, agrees to lend you an amount of money under certain conditions. These conditions generally include an interest rate, a term and a specific payment frequency.

A loan can help you achieve a goal or need, such as buying a car, financing your studies or contributing to your RRSP or FHSA. The right financing product for you may be a loan or a line of credit, depending on your plans.

What is the difference between a guarantor and a co-borrower?

If you agree to be someone’s guarantor, you’re agreeing to cover their loan if they can’t pay it. This means you’re responsible for repaying the entire amount if the borrower fails to meet any of their obligations, but you cannot use the borrowed funds yourself.

If you’re a co-borrower, you and the other borrowers are responsible for 100% of the loan. This means that if your co-borrower fails to meet any of their obligations, you’ll be responsible for the entire amount.

Does taking out a loan or a line of credit affect my credit file?

Yes, having a loan or line of credit is one of the factors that may influence your credit file and rating with credit bureaus. However, since credit bureaus are the ones who assess these factors, it’s hard to say how exactly your credit file will be affected. Financial institutions have their own checklist when deciding on whether or not to grant someone credit.

To learn more, read the article What is a credit report used for?

What happens to my joint loan or line of credit if I get separated or divorced?

In case of separation or divorce, you and your ex-spouse remain fully responsible for repaying the entire loan or line of credit. This means that if either of you can no longer pay, the other will have to cover the entire amount.

If you and your ex-spouse agree to no longer be co-borrowers, you can ask for the lender to release the co-borrower from the loan agreement. In this case, you will need to prove that you are able to repay the loan on your own.

How do I find out what my debt ratio is?

To calculate your debt ratio, you need to calculate your gross debt service (GDS) and your total debt service (TDS).

• To get your GDS, divide your monthly housing costs by your monthly gross income. Monthly housing costs include mortgage payments, approximate heating and electricity costs, and municipal and school taxes.
• To get your TDS, divide your monthly housing costs and other financial obligations by your monthly gross income. Other financial obligations include loans, lines of credit, credit cards, home insurance and any other debts.

In general, a good GDS is no higher than 32% and a good TDS is no higher than 40%.

If you’re a member, you can use the Manage debt tool in our mobile and online services to view your debt ratio.

What is debt consolidation?

Debt consolidation is when you combine multiple debts into one. It’s a way to make your finances easier to manage, since you’re only paying one creditor instead of several.

Like for any financing, a credit check is required.

To learn more about debt consolidation, visit the Government of Canada website External link..

Does consolidating my debts affect my credit file?

Yes, consolidating your debts may influence your credit file and rating with credit bureaus. However, it’s hard to know exactly how, since each credit bureau has its own way of evaluating how you use credit.

Can I take out cash at an ATM from my line of credit?

You can’t take out cash from your line of credit at an ATM, but you can use the Transfers between accounts feature in our mobile and online services to transfer money from your line of credit to your everyday account. Then, you can go to an ATM and take out the cash you need from your everyday account.

Can I pay bills directly from my line of credit?

No, you cannot directly pay bills from your line of credit. If you want to use the money in your line of credit to pay a bill, use the Transfers between accounts feature in our mobile and online services to transfer funds from your line of credit to your everyday account. Then, you can pay your bill with the funds transferred to your everyday account.

How do I close a line of credit?

To close your line of credit, pay it off completely, then book an appointment with an advisor using our mobile and online services.

How do I calculate my payments on a personal loan?

Use the payment calculator feature in our mobile and online services to calculate your payments.

Does the interest I pay on a personal loan reduce my taxable income?

Interest paid on a personal loan may reduce your taxable income, but you must have taken out the loan with the purpose of generating taxable income. For example, you took out the loan to generate income from a rental property or from investment dividends, as declared in a T5 slip.

In Quebec, interest paid on a personal loan is only tax deductible for that year if the income you generated is greater than the interest you paid on your loan. If it’s lower, you’ll have to carry forward your interest expenses to a year where the income you generated is greater than the interest you paid.

Speak to a tax or accounting professional before claiming interest on your tax return.

What is the difference between a secured and unsecured loan?

A secured personal loan is one where you put up collateral to guarantee the loan. Collateral is an asset that the lender can take possession of if you don’t make your payments or fail to comply with any other obligation under you loan agreement. You could use your vehicle or savings as collateral, for example. Providing collateral usually gets you a lower interest rate than you’d have with an unsecured personal loan.

Can I refinance my car loan?

No, you can’t refinance a car loan. Contact us to help you find the financing solution that best fits your needs.

Can I transfer a car loan to someone else?

No, you can’t transfer a car loan to someone else. Anyone who wants a car loan must apply for themselves and meet the current requirements.

Can I transfer my car loan from one vehicle to another?

No. Each vehicle has a unique Vehicle Identification Number, so you can’t transfer your car loan to another vehicle.

What is my Auto and Leisure Vehicle Loan account for?

This account is exclusively for paying back your Auto or Leisure Vehicle Loan. You can’t use it for regular transactions like payments or withdrawals.

Do I need to repay my car loan from an auto loan account if I got my car loan from a dealer?

No, you don’t need to repay your car loan from an auto loan account. Your payments will be taken from the account you chose when you bought your vehicle at the dealership, at the frequency you chose.