A Guide to Responsible Borrowing with Personal Loans: Do's and Don'ts

Responsible Borrowing with Personal Loans: Do's and Don'ts

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By Bromwich+Smith Staff | 1211 words | Reading Time: 6 minutes | Last update: 2023/09/15

Canadians tend to rely on their savings and credit products such as personal loans, credit cards, and lines of credit for financial support in times of crisis. Credit is also used to build credit reports and scores and to finance items that are too expensive to pay for upfront, like a car or house. Given the necessity of credit, it's important to understand the do's and don'ts of borrowing money.  

The Do's of Borrowing Money: 

1. Research and Compare Loan Options: 

Before you commit to a personal loan, take the time to explore the options available. Compare interest rates, repayment terms, and associated fees among various lenders. As well as different types of loans, home equity, lines of credit, personal loans- they all come with different terms and fees. 

2. Check and Improve Your Credit Score: 

A strong credit score can drastically impact the terms of your loan. Before applying, obtain a copy of your credit report, rectify any inaccuracies, and consider actions to enhance your creditworthiness. A better score can lead to more favorable loan terms which means you save more in the long run.  

3. Understand Loan Terms and Interest Rates: 

Transparency is key. Thoroughly comprehend the terms of your loan, including interest rates, repayment schedule, and any hidden charges. These terms are not always the easiest to understand so it is important to ask a financial expert to help guide you if needed. Some loans will offer options for you to increase your payments, others will not and you may be penalized for paying off the loan in full and closing the account. 

4. Create a Budget and Repayment Plan: 

Craft a budget that considers your existing financial obligations as well as the new loan. Calculate the monthly payments and ensure they align with your income. A well-structured repayment plan will help you ensure this is something that can fit in with your current income. 

The Don'ts of Borrowing Money: 

1. Borrowing More Than Needed: 

While a larger loan amount might seem tempting, only borrow what is absolutely essential. Overborrowing can lead to unnecessary debt and financial strain down the road. 

2. Ignoring Hidden Fees and Charges: 

Scrutinize the loan agreement for any hidden fees or charges that could inflate the overall cost of borrowing. Be aware of penalties for late payments or early repayment. 

3. Falling for Predatory Lenders: 

Exercise caution when dealing with lenders who employ aggressive marketing tactics or promise loans without proper credit checks. Research lenders to avoid potential scams. 

4. Taking Loans for Non-Essential Expenses: 

Reserve personal loans for genuine needs, such as medical emergencies or necessary home repairs. Avoid using loans for discretionary spending, as it can lead to unnecessary debt accumulation. If you were unable to pay for the item prior to the loan, you need to fully understand if you will be able to pay your current expenses, as well as the loan payments. 

Responsible Borrowing Strategies: 

1. Explore Alternative Options: 

Before considering a personal loan, explore alternatives like using savings, negotiating budgets, or seeking assistance from family and friends.  

2. Apply for the Right Loan Amount: 

Calculate your exact financial obligations and apply for a loan amount that addresses those needs. This prevents excess debt and ensures manageable repayment. 

3. Read the Fine Print: 

Carefully read and understand every aspect of the loan agreement. Clarify any doubts and ensure you are fully aware of the terms and conditions before signing. 

Managing Personal Loan Debt: 

1. Repayment Strategies: 

Create strategies to ensure timely payments, including setting up automatic transfers. Consistent repayment history enhances your credit score and reduces overall interest incurred. 

2. Dealing with Financial Hardships: 

In case of unexpected financial challenges, communicate with your lender immediately. They might offer temporary solutions like deferment or modified repayment plans. These options are only available if you are open and honest with them from the start. 

3. Avoiding Default and Penalties: 

Defaulting on loan payments can have severe consequences, including damage to your credit score and additional fees. Prioritize loan payments to prevent such situations. 


Borrowers are often surprised with fees they didn’t read about in the contract. 

  • Late fees - In the event, you miss a payment, how much of a late fee will you be charged? If the fees are exorbitant, it may be wiser to consider a different lender. 

  • NSF fees - Lenders typically receive their payments via direct debit. If you fail to make a payment due to insufficient funds, you’ll not only be charged a late fee, but an NSF fee charged by your lender and potentially your bank as well. These charges typically range between $25 - $45. 

  • Prepayment fees - If you plan on paying off your personal loan early, you should review the fees on prepayments. Lenders typically want you to complete the term as they earn more interest that way. To curb such behavior, they often charge high fees for prepayments. 

  • Term length - Be sure that your term works with your budget and isn’t just a term that provides you with the lowest payments as this will cost you more in the long run. A shorter-term personal loan means higher payments but ultimately the total cost of your loan will be lower. 

Do Ask For Help 

Borrowing money can lead to complications. If you’re having trouble managing your debt, it’s important to reach out for professional help before things get out of control. A financial advisor can help you reevaluate your budget to include your debt payments. They can also help develop a plan to repay your debts faster. A credit counsellor can also help by providing debt relief solutions such as a debt management program, where they can renegotiate the interest and monthly payments with your creditors. 

Don’t Rely on Payday Loans 

Payday loans are the most expensive way to borrow money. They have a short term of 14 days, and an APR that averages around 500%. Moreover, payday lenders often charge exorbitant fees for late payments. As a result, many Canadians fall into the payday loan cycle, a cycle of debt that can easily ruin your finances. 

In general, it’s recommended you use a payday loan as a last resort. These short-term, high-interest credit products are typically relied on by individuals who were credit constrained. In fact, according to a report by the Financial Consumer Agency Of Canada, 60% of Canadians who have used a payday loan did not have access to a credit card. 

Pros and Cons of Personal Loans: 


  • Flexibility: Personal loans can be used for various purposes and you do not need to state up front what the money is being used for. 

  • Quick Access: These loans offer fast funding in urgent situations, with many offering e transfer options available. 


  • High Interest: Personal loans often carry higher interest rates compared to secured loans. 

  • Debt Accumulation: Irresponsible borrowing can lead to a cycle of debt. 

Navigating finances can be difficult regardless of your situation. Knowing what the best practices are, adhering to the do's and avoiding the don'ts, what the right product and lender are can be difficult to navigate on your own. Remember, responsible borrowing ensures your financial stability and paves the way for a brighter financial future. 

It's important to remember that you are not alone when facing overwhelming debt. Bromwich+Smith offers effective debt relief strategies that can help you regain control of your financial situation. We will highlight some of their debt relief strategies and the support they can provide throughout your journey. For a free, compassionate, and personalized consultation, call Bromwich+Smith at 1-855-884-9243, or visit bromwichandsmith.com.   


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