Have you turned down a badly needed loan or credit card? There are other options

After stopping borrowing and spending at the onset of the pandemic, Canadians are increasingly looking for alternative lending and buy-it-now-pay solutions later. Here’s what you need to watch out for if you want to apply.

Circle your head all the fees, terms and conditions of alternative loans

Credit-strapped Canadians – those with poor credit scores (below 600) and incomes below $ 40,000 – rely heavily on alternative lending solutions; loans from non-banks and non-traditional lenders such as online lenders. If approved, borrowers quickly get the cash they need – through a loan or line of credit, for example – to make ends meet, which we all know is essential. at the moment.

In return, alternative lenders may charge higher interest and other potential fees such as NSF fees (if a payment bounces); late payment penalties (administrative costs if the borrower misses a payment); collection costs (if the lender has to go after the borrower to pay or if they transfer the case to a collection agency); and loan closing and origination costs (fees for completing paperwork and setting up automatic payments). All of these charges are technically legal. But, unlike the big banks and payday lenders in Canada, the alternative lending market is less directly regulated, which can put consumers at greater risk when borrowing.

According to recent data from LoansCanada.ca, about 30 percent of respondents with limited credit felt they were pressured into choosing a particular loan product because the offer (rate and repayment terms) would be “unavailable” within a short period of time. What further complicates the situation is that under pressure, these same borrowers agreed to terms that they did not fully understand.

Pressure is bad for financial decision making.

So, before signing a loan agreement, take a step back for at least 24 hours to review and understand the terms and conditions, ask questions, and release the tension from any high pressure sales tactics. Absolutely all the fees to complete your loan agreement, and the interest rate, must be incorporated precisely in the contract you sign. Are the interest rate and repayment schedule displayed correctly? Have you been charged anything in addition to what you and the lender have discussed? Correct and negotiate any errors. During this 24 hour waiting period, I would also recommend comparing multiple offers from multiple lenders. Also take the time to read customer and watchdog reviews, as some alternative lenders have a much better reputation than others.

If there are language barriers, it may be helpful to go through this review process with someone who can translate the agreements for you and help you get your questions answered.

Buy now-pay-later

This is the digital version of the old-fashioned layaway plans. According to PayBright, Canadians are increasingly using these programs to separate their payments from various purchases; clothing, home supplies, work-from-home solutions, and the many accessories – like makeup – too.

For small purchases paid for in weeks or months, buy now-pay later retailers may offer zero percent interest. For larger purchases paid for more than six to 60 months, retailers set their interest rate, which can sometimes be lower than average credit card interest rates. And yes, credit checks are done for those larger purchases.

The benefit for consumers is that they don’t have to pay all at once, which means more funds are available for daily expenses or one-time savings. For retailers, this keeps sales and inventory moving. The downside for consumers is the additional debt.

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The key thing to pay attention to when considering a Buy It Now and Pay Later option is the total cost of the purchase, amount of payments, frequency of payments (weekly, biweekly, monthly, etc.) and the interest that will be charged. In other words, take a look at the total cost of the purchase and make sure your monthly budget can handle it.

If you’re on the hunt for cash or just trying to ease the strain on your cash flow, the best advice I can give is to reduce any risk of unnecessary borrowing by being informed exactly what you’re getting into. sign up and making sure you can afford the refunds.

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