A QUICK GUIDE ON BORROWING DURING THE PANDEMIC

There’s no doubt, the COVID-19 pandemic is having a serious impact on the Canadian economy. To save lives and prevent even more damage, necessary safety restrictions and lockdowns have had to be implemented that have unfortunately resulted in many businesses scaling back or closing. This has left many Northerners in a tough financial position.

From March 16-22 alone, nearly 1 million Canadians applied for unemployment benefits, according to the Globe and Mail. And as we enter a second wave, this number is expected to grow until we see a vaccine. To help worker’s and businesses stay afloat, the government has launched several initiatives, including the Canada Emergency Response Benefit (CERB) and later the Canada Recovery Benefit (CRB) for individuals, and the Canada Emergency Business Account (CEBA) for small businesses.

While these programs have been sufficient for some, many are still struggling to make ends meet. If you’re among this group and are thinking about borrowing money, we’ve put together some helpful answers to some of the most important questions you’re going to want to ask yourself.

SHOULD I CONSIDER BORROWING DURING THE PANDEMIC?

If you find yourself in a tough spot financially, it’s best to know what all of your options are before committing to a loan, line of credit or other source of credit. Remember, depending on the size of the loan, the interest payments could also be significant and require a solid plan to ensure you’re able to carry those costs for the long term if necessary. If you can manage your finances without having to take on additional loan interest payments, that might be your best approach, especially if you’re not sure when you’ll have a stable income again. Here are a few options you can consider:

TIGHTEN YOUR BUDGET

See if creating a strict budget and sticking to it will help alleviate your money strains. This involves prioritizing your expenses towards the most important stuff like rent, mortgage payments, bills, groceries and childcare while cutting back on non-essential costs. We’ve put together a handy budgeting map that might help you keep on track.

TAP INTO YOUR SAVINGS

Even though it isn’t ideal, you may want to consider dipping into your savings, rather than taking out a loan. If you have money in a Tax-Free Savings Account (TFSA), that might be the best place to start as it is already post-income-tax money, unlike your Registered Retirement Savings Plan (RRSP).  Also, once you take the money out, you will still have that room in your TFSA to save in the future.

SELL ASSETS

If you have any non-essential assets that you can sell to ease the financial burden, that might be another option to consider. Maybe you have a valuable item you can put on Kijiji.com or a car that you’re not using very much right now. Selling those assets could raise enough money to help you out in a pinch.

SEEK GOVERNMENT RELIEF

The Government of Canada has put together a comprehensive COVID-19 Economic Response Plan designed to help Canadian’s and businesses facing hardships. We touched on CERB, CRB and CEBA above, but there are more benefits that you might qualify for on the Government of Canada website.

If you’ve exhausted all your other options, then borrowing may be able to help you bridge the gap until your longer-term financial picture becomes clearer.

WHAT ARE THE PROS & CONS OF BORROWING RIGHT NOW?

The most obvious ‘pro’ for borrowing is access to money when you need it most. This may be a no-brainer, but some other benefits might not be as immediately apparent, like the low interest rate environment. Currently, interest rates are at a historically low level, reducing the cost of borrowing. The Bank of Canada has also announced that “interest rates are going to be unusually low for a long time."

Another ‘pro’ is that we’ll work with you to find the best solution for your individual circumstances at Northern Credit Union. You can count on us to help you determine which borrowing product makes sense for you and design a payment schedule that’s fair and manageable.

In terms of cons, the most obvious drawback of borrowing is that you will be incurring debt and will need pay interest on the money you borrow. Also, it’s still unclear as to how long the pandemic will last, so it’s best to be careful while your income may be unstable.

WHAT ARE MY BORROWING OPTIONS?

At Northern, we offer a number of different borrowing options. What’s best for you depends on factors like why you’re borrowing, the amount you need and when you plan on paying it back. Here are some borrowing options to consider:

CREDIT CARDS

With relatively high interest rates compared to other borrowing options, credit cards are meant for short-term purchases that you plan to pay back in the near future.

TERM LOANS

These types of loans come with lower interest rates than credit cards and are meant for larger sums that are payed back according to a set, agreed-upon schedule.

LINES OF CREDIT

With a line of credit, you get approved for a pre-set limit and you only pay interest on what you use. And once you begin to pay it back, you can access funds again without reapplying.

MORTGAGE REFINANCING

This involves refinancing to take out a loan in addition to the amount owing on your existing mortgage. There are fees involved but it may be worth it for the lower rate.

SECOND MORTGAGE

This type of loan allows you to leverage the home equity you’ve accrued as collateral for the money you borrow.

No matter what your financial situation is, it’s always good to talk to an expert. Similar to how, if you have leaky pipes, you’d call a plumber to give you an assessment, a Northern Advisor can help you do the same when it comes to you finances. Give us a call at 1-866-413-7071 – we’re here to help.