Credit comes in many forms, and each type works a little differently. Whether you're borrowing for a big purchase or covering everyday expenses, understanding your options can help you make smart financial decisions.
Loans
A loan gives you a lump sum of money that you repay over time, usually in regular monthly payments. You agree to pay back the full amount, plus interest, over a set period.
Common types of loans include:
These can be used for many purposes, like home repairs or emergencies. They may be fixed (you borrow and repay a set amount each month) or open (you can borrow and repay as needed).
A fixed loan used to buy a vehicle. You repay it in equal monthly payments.
A loan used to buy a home. Mortgages often have long repayment terms and lower interest rates.
Learn more about mortgages
You pay to use something—like a car—for a set time. You don’t own the item, but you’re responsible for regular payments.
Explore personal loans on the Government of Canada’s website.
Payday loans are short-term loans for small amounts of money. They’re often promoted as a way to help cover expenses and tide you over to your next payday, but they can come with high interest rates.
Even though they seem convenient, payday loans are one of the most expensive ways to borrow. If you’re considering one, make sure you understand the full cost.
A line of credit is a flexible loan that lets you borrow money when you need it. You’re pre-approved for a maximum amount and can use it as needed.
You usually make monthly payments, which may be interest-only. That means you’re not reducing the amount you owe—just paying the interest.
Lines of credit often have lower interest rates than credit cards, but it’s important to have a plan to pay off the balance.
Learn more about lines of credit
Credit cards are issued by a financial institution or financial service company. They let you buy items “on credit.” When you use a credit card, the financial institution pays the seller, and you repay the institution later.
Credit cards are convenient, but they can lead to debt if not managed carefully. Interest rates for credit cards are often high, especially if you don’t pay off your balance each month.
Learn more about getting your first credit card
BNPL services let you buy something right away and pay for it in installments. You usually make a small down payment, then pay the rest over time.
BNPL is becoming more popular in Canada and is now used for everyday purchases like clothes and groceries—not just big-ticket items.
BNPL works like an installment loan that is usually offered either online when making the purchase or they can be linked to credit card purchases. It’s important to understand the payment schedule and make sure it fits your budget.
Creditor insurance helps cover your loan payments if you can’t make them due to illness, injury, or death. It usually applies to one specific debt, like a mortgage or personal loan.
This type of insurance can offer peace of mind, but it’s important to understand what’s covered and how much it costs.