Businesses and employees hit rock bottom when the pandemic came and disrupted the global economy. The limited operations and massive income reductions led to shutdowns and layoffs. Small and medium enterprises (SMEs) had no one to turn to. The jobless households had a hard time making ends meet and getting bank loan approvals.
Given this, many penniless Canadians are turning to lenders with predatory tendencies. Payday and installment loans have become more prevalent in Canada. Yet, the questions and criticism continue to surround the industry. Hence, we will know more about installment loans to help you manage your finances.
Installment Loans
In essence, an installment loan is a personal or commercial loan that must be paid in fixed schedules and installments. Borrowers must know the factors affecting installment loans, such as the principal amount, the interest rate, payment frequency, and the loan duration. In short, every payment corresponds to a portion of the principal amount and interest.
A person may apply for personal, auto, mortgage, and student loans. Installment loans are more flexible than banks are since one can borrow with or without collateral. Also, a higher amount can be lent compared to payday loans. If you want to learn about installment loans and how to apply for them, you can go to the nearest lenders in your area or look on the internet.
Why Installment Loans Appear Controversial
Despite the leniency and convenience, criticisms surround installment and payday loans. Both have a notorious reputation for being predatory and unlawful. Yet, many Canadians, particularly the jobless and the lower-income households, are turning to them. In the last year, installment loans have started to outpace payday loans.
The primary reason for this is the limit in the loanable amount. Unlike payday loans with a maximum of $1,500, one can apply for as high as $10,000. Also, the interval before the payment schedule is longer and more flexible than payday loans. It is no wonder that news dubs installment loans as Canada’s new generation of high-interest loans.
Installment loans bear higher interest rates like payday loans, attracting more skeptics and critics. What makes them riskier is the presence of unregulated and illegal lenders, who can burden and even harass borrowers. So before you apply, make sure that the lender is legal or regulated in Canada. You must ensure that you have enough means to pay it on time to avoid paying other charges.
For example, a borrower in Toronto ended up paying $5,850 when all she wanted to do was buy a couch. Apparently, the installment loan she applied for had a 29.99 percent annual interest rate. She applied for a $1,466 loan to finance her couch purchase. She borrowed an additional $395.50, with a fee of $102. Another borrower had to pay a loan with an annual percentage rate (APR) of 47 percent.
The thing is, before you borrow, you must first understand the payment terms. You must check the annual interest or percentage rate of the principal value. No matter how low an interest rate may seem, you must calculate the accumulated amount. That way, you can assess if the total amount is reasonable.
Why Installment Loans are Necessary
Amidst the fear and uncertainty, having enough funds for emergencies is crucial. But, it is not easy when you are unemployed or earning lower than usual due to the limited availability of jobs. Despite the questions, installment loans remain a staple for many Canadians. Here are several factors that prove the importance of installment loans:
Instant
No paperwork or faxing is needed when applying for installment loans. You can even apply online, so you will not have to go through the hassle of going out and queuing up for hours. Often, the installment loan application process only takes a few minutes. The approval will be released as soon as possible, making it suitable for emergencies.
Flexible
Installment loans are flexible in terms of loanable amounts and payment terms. In payday loans, you can only borrow as much as $1,500, which is still subject to your financial capacity. In installment loans, you can borrow up to $10,000. Some lenders are more flexible, enabling you to borrow $15,000 if needed.
Moreover, payment intervals of installment loans are longer than other non-bank loans. In payday loans, you have to pay on the next payday. Otherwise, you will have to pay for additional charges, such as penalties and overdrafts. Meanwhile, installment loans allow you to pay monthly or by the agreed interval designed by lenders to fit your tight budget.
Their flexibility may also extend to collateral. Unlike in banks, installment loans welcome borrowers even without collateral. With that, you do not have to risk your property, especially when you are uncertain whether the lender is regulated or not. But you must still be careful since lenders can go after you when you do not pay them.
More Lenient Than Banks
Interest rates are lower today, but banks have become more rigid with loan applications. They have to be more careful to maintain their liquidity, especially when the interest rates rebound. They are more particular about the background of the borrower or business owner. Hence, review and approval may take longer than usual.
Also, banks may set a minimum income before accepting applications. In installment and payday loans, everyone is welcome, employed or not. Only the loanable amount may vary according to the borrower’s capacity. Note that the current inflation rate in Canada is 5.1 percent, the highest since 1991, so the interest rate hikes may take place anytime soon.
Conclusion
Many people globally are still having a hard time finding jobs and making ends meet. Installment loans are there to provide temporary assistance amidst economic uncertainty. Their leniency enables borrowers to find means during tough times. However, one must be more careful to avoid paying exorbitant principal and interest.
