Although government-funded student loans are the best option for students, some students will not qualify for this type of assistance. As an alternative, many Canadian financial institutions offer educational or student loans to assist students and their families with securing the resources required for their post-secondary studies. Bank-funded assistance can come in the form of student loans (interest is paid on the total amount of the loan) or lines of credit (interest is only paid on the total amount used).
Unlike government loans which are based on financial need, bank loans are based on the ability to repay the loan. Applicants need to provide financial information about their income from all sources, including part-time employment, as well as an estimate of expenses. Students with a poor credit rating, or no credit rating at all, may be required to have a credit-worthy guarantor co-sign the loan. This person, often a parent or other relative, would be responsible for repaying the loan in the case of non-repayment by the student.
In general, the principal (original balance) of bank-funded student loans does not go into repayment until 6 to 12 months after graduation or the last period of full-time attendance in a post-secondary institution. However, students are responsible for paying the interest accumulating on the loan on a monthly basis from the date they obtain the loan. The monthly cost of maintaining bank-funded student loans should be incorporated into the academic year budget in budget planning.
For more information on specific bank-funded student loan opportunities:
TD Canada Trust
Bank of Montreal
Key points to remember with Bank Student Loans and Student Lines of Credit:
- Bank-funded educational or student loans are excellent alternatives to higher-interest credit cards.
- Funding can be in the form of a loan or a line of credit.
- A co-signer or guarantor may be required, depending on the credit-worthiness of the applicant.
- Students who don’t qualify for government loans can still potentially access bank loans.
- Banks usually offer a competitive rate of interest for student loans and lines of credit, sometimes lower than government-sponsored student loans.
- With bank loans, a specific amount is borrowed up to a maximum, and interest is paid on a monthly basis on the total value of the loan.
- With lines of credit, a maximum amount is approved, and interest is paid on a monthly basis on only the portion actually used or withdrawn. Accessing a line of credit is easy – it works similarly to a normal chequing account.
- Depending on the terms of the funding, in 6 to 12 months after graduation, the Loan or Line of Credit is converted into a monthly payment, which includes repayment of the principal and interest. Often the rate of interest changes in the repayment period.
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