Should you get a loan for first and last month’s rent in Canada?
Using your own money first is Elke Rubach’s preferred method. Rubach, who is the CEO of Rubach Wealth, says taking out a loan for rent should be your last recourse after exhausting all other options, including borrowing from friends, family or a line of credit. Once you’ve secured the loan, you should build the payments into your financial plan.
“It’s hard to see people have to access these things. They probably feel desperate and alone that nobody else can help them,” she says. “Just make sure that you know how you’re going to pay it back,” she says.
Darryl Brown, a certified financial analyst charterholder and investment planner with You&Yours Financial, says borrowing for rent is not new—it’s just updated technology. People have been borrowing money for rent using credit cards and lines of credit, and this is just an additional option for people, he says, pointing out that the new loan option can be a good thing.
Currently, the housing and rental market is competitive in Canada, and using a company like Nesturo could work for people who need to make a quick move. When done correctly, it can be a net positive, says Brown, but borrowers need to read the fine print and understand that companies like Nesturo aren’t a silver bullet. “It’s an additional source that has repayment terms, an interest rate, which includes timely payments, which includes the ability for your payment term to change.”
Rental loan fine print includes stipulations on how and when you can get out of the arrangement, so like with any document, you need to know all the information before you sign or agree to the terms, says Brown.
“There are the same risks that happen with any kind of loan in that you fall behind,” Brown explains. “You trade one set of stresses for another. So, it’s not the preferred source for sure, but I fully recognize from a human standpoint that things are really challenging for people.”
That means that whatever savings people may have left after the pandemic and skyrocketing prices, it may not be enough to cover a full rental deposit.
Rental loan versus borrowing from credit cards, LOCs and more
There are other options for paying your first and last, like borrowing from a line of credit with a rate of up to 10%, or credit cards that start at 20.99% APR, if you don’t have an emergency fund. Brown says that while Nesturo may advertise a 6.99% rate, not everyone will qualify for it.