Over the past month, the Bank of Canada interest rate has dropped to the lowest it has been since July of 2017 — 0.25%.

Is this a good thing? A negative? And what does it mean for your finances — especially during the novel coronavirus (COVID-19) pandemic? We’re answering all these questions and more.

Canadian Interest Rate Decrease: March 2020 to April 2020

From March 4, 2020 to April 15, 2020, the Canadian interest rate has dropped significantly.

Before March 4, it was at 1.75% — the highest it reached since the Bank of Canada (BOC) began increasing it in July of 2017.

However, on March 4, the interest rate dropped to 1.25% — due to threat of the coronavirus.

The next BOC announcement was scheduled for April 15. But between March 4 and April 15, the BOC made two emergency changes to the interest rate as the impact of the coronavirus became direr.

On March 13, the BOC dropped the interest rate to 0.75%.

On March 27, they further decreased it to 0.25%.

The BOC maintained 0.25% on April 15 and noted that this is the lower bound — indicating the rate is not likely to go any lower. (By comparison, some other countries have interest rates of 0% or even a negative percentage.)

With interest rates the lowest they are likely to get, what does this mean for you?

Managing Credit During the COVID-19 Pandemic

Lower interest rates traditionally make it easier to secure access to credit. And that was the intent of the BOC in lowering them during this time — to help Canadian consumers and businesses have access to credit to weather the storm.

However, the COVID-19 pandemic is a truly unprecedented situation, and there are some things to keep in mind if you’re considering taking on more credit during this time.

1. Not all lenders — and credit — are the same

When it comes to securing a loan in Canada, not all lenders are the same. A loan from a bank or a reputable private lender might look very different from a payday loan, for example.

Similarly, not all credit is good credit. If you are taking on a loan, make sure that it is from a lender that reports to the Canadian credit bureaus so good payment habits can be tracked and used to fix credit, if needed.

And credit isn’t the only consideration to make when taking on a loan. You also have to look at your ability to repay it. For instance, if you take on a new credit card, you are responsible for paying the balance each month — and this could vary depending on how much you use it. However, a secured loan may have a fixed payment plan that can make it easier to budget for.

2. Some lenders might be increasing rates to mitigate risk

The other consideration with interest rates is that just because the Bank of Canada key interest rate is lower, it doesn’t mean that all lenders have lowered rates.

For instance, analysts have noted that rates for new mortgages are actually going up, not down.

This is because of the risk that lenders must take on during this time. With so many Canadians out of work or on the cusp of being out of work (the Bank of Canada noted that more than 1 million people lost their jobs in March), lenders may fear that clients will lose their income and not be able to repay their loans – so they set a higher interest rate.

3. Only take on credit you can afford

Just because you can access more credit doesn’t necessarily mean that you should.

This is an especially tough situation because with the ongoing COVID-19 pandemic, if you have lost income, credit can seem like the only way to bridge the gap. But you could be doing long-term damage to both your credit score and your finances.

While credit can help in the short-term, you need a plan to pay it off. Relying on debt to pay your bills isn’t sustainable.

If it feels like the only choice that you have, there might be another way. Contact a debt counsellor for a free consultation to explore other options.

4. Make wise use of credit

If you do decide to take on more credit, do so with your eyes open and with a purpose in mind.

Lower interest rates can make this a good time to deal with your debt and create more flexibility in your budget.

For instance, a debt consolidation loan could take care of your unsecured debts.

If you have lost income, you may be able to get a better settlement deal for any existing debts now, vs. waiting for your paycheque to return. This is because debt settlements are generally based on income.

Make lower interest rates work for you — not the other way around.

Read the full text of the April 15 Bank of Canada announcement here: https://www.bankofcanada.ca/2020/04/fad-press-release-2020-04-15/

The next BOC announcement is scheduled for June 3, 2020.

Have questions about managing your debt during COVID-19 and beyond? DebtCare Canada is here for you – 100% remotely. We are fully operational with service by phone or online.

Call 1-888-890-0888 or visit www.debtcare.ca for a free consultation