Installment loans have been around in the U.S. for decades but they are relatively new to Canada. Equifax says installment loans are the second fastest growing type of debt in Canada, accounting for a total of approximately 8.7% of Canada’s total debt distribution. In a nutshell, installment loans are unsecured, high-interest, subprime, short-term loans. Many people who are in need of money can easily get caught up in these types of loans as they are easy to get and it’s a quick fix. What they don’t realize is, once they “buy-in”, they are most likely stuck in the cycle for decades.
At a glance, installment loans sound like a decent concept for someone who can’t afford the full price for something up front. What people don’t know is that the long-term cost is often much, much more.
These types of loans, which include rent-to-own contracts, have very harsh penalties. For instance, if a payment is missed, the lender could demand that the total cost of the loan be paid in full, immediately. If it can’t be paid in full, which it most likely can’t, the product could be repossessed and the consumer could lose the product and all of their money that was already invested.
These sorts of penalties are the types of things the Ontario government is trying to rein in with the introduction of Bill 156, “Alternative Financial Services Statute Law Amendment Act, 2015.” Beginning in 2017, Bill 156 will give consumers a grace period if they miss a payment.
Another issue that should be revisited in the Bill, but it’s not clear that it will, is interest rates on installment loans. In an article in cbc.ca, they stated, “According to two actuaries we consulted, alternative lenders are charging interest rates on installment loans as high 57 per cent, just below the legal limit of 60 per cent. There are no regulations governing installment loans, beyond the interest rate provisions in the Criminal Code.” This needs to be addressed.
If you find yourself in debt and are looking at installment loans as a solution, contact us first. We can help you get a fresh financial start so that installment loans don’t have to be an option.
