Most Canadians know that payday loans are expensive and difficult to repay. Nevertheless, nearly 40 per cent of bankruptcy filings are by people stuck in multiple predatory loan contracts. Here’s what to look for so that you can avoid unfair loans and the debt problems that follow.
IDENTIFYING PREDATORY LOANS
A predatory loan can take the form of a line of credit, business loan or instant loan. They may be offered in a store, at a car dealership, or online. Here are some of the signs of predatory lending to watch out for:
• High-interest rates and hidden fees. The interest rate on a two-week payday loan in Ontario is in the triple-digits, despite government rate caps. Payday loan companies get around interest rate limits by charging late penalties, high fees and adding things such as mandatory insurance that can double the cost of borrowing.
• A fast and easy application process. Predatory lenders are friendly and present a hassle-free application process. You’ll often have your money in less than an hour, or minutes if you borrow online. The process is quick and easy because lenders don’t want you to take the time to read and understand the contract terms.
• No credit check is required. Another sign of predatory lending is if there’s no credit check required. Reputable lenders investigate your credit history because they want to assess your ability to repay a loan. Predatory lenders already know you’re a high-risk borrower, but they intend to profit through high-interest rates and fees.
• Rollovers and repeated refinancing. Predatory lenders don’t want you to repay the loan in full. In fact, the longer it takes you to repay it, the more they’ll profit. Avoid alleged incentives such as car-loan rollovers, where you can refinance a new car by rolling your unpaid debt into a new loan. You can end up owing the dealership more than what your vehicle is worth.
HOW TO PROTECT YOURSELF FROM PREDATORY LENDING PRACTICES
Avoid predatory loans by borrowing money from friends and family or negotiating better rates with your usual creditors. You can also take a cash advance on your credit card, which is cheaper than an instant loan.
However, taking on another loan isn’t always the best solution if you have mounting debt problems. Getting a handle on your finances can reduce your loan payments and allow you to repay debts more quickly. For example, a licensed insolvency trustee can help you file a consumer proposal.
DEBT HELP IN OTTAWA AND THE SURROUNDING AREA
At D. & A. MacLeod Company Ltd., our licensed insolvency trustees can help you take control of your finances and get out of debt. We file consumer proposals and can help you with credit counselling and debt consolidation. To book a free financial consultation, contact us today.