Installment loans

What is an installment loan?
Installment loans are high-interest loans, usually between $500 and $10,000, provided by alternative financial institutions (i.e. non-bank). Installment lenders often provide loans to borrowers who cannot access traditional loans from banks. Interest rates can be as high as 59.9%, just under the legal limit of 60% under the Criminal Code of Canada. User fees and insurance costs sometimes push borrowing rates to over the 60% limit so it’s important to check the total cost of your loan.

Key things to ask yourself before signing an installment loan contract?

How much will I have to pay each month?

What is the total amount I’ll end up repaying?

Is the loan secured?

How long will it take to repay the loan if I make all the payments on time?

If I miss a payment, does the interest rate, or any other term of the loan agreement, change?

Do I have to pay for any insurance?

If I do have to pay for insurance, how much more will it cost per month? What will the total cost of insurance be over the term of the loan?

Rules that the lender must adhere to:

1. A contract must clearly show the terms of your agreement with the business.

2. The contract must show all financing charges and the annual interest rate for any financing agreement with the business. It must also explain how any extra charges would be calculated if you failed to make the payments. (This is critical: loan agreement terms, including interest, may allow for drastic changes if you miss a payment).

3. The business must provide you with written notice of any changes that they want to make to your contract. This includes renewing or extending it. They must also provide you with the option to not accept the changes to your contract.

4. For the changes to be valid, a written notice must include: (a) all proposed changes to be made to the contract; (b) the date on which the change, renewal or extension would become effective (c) how the consumer must respond to the notice (mail, email, fax, etc. (d) what would happen if the consumer failed to respond to the notice.

5. If a business doesn’t follow the rules for written notices, any changes to your contract may be invalid.

COST: Interest rates are usually up to 60%. User fees and insurance costs sometimes push borrowing rates 60%.

Find out more: Consumer Protection Ontario