Forget payday loans, this is Canada’s new generation of high-interest loans

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All Kathleen Zane wanted was to buy a sofa. Instead, she says she took out a personal loan with a debt of $5,850 and 29.99 percent annual interest.

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“I was crying,” Zane says of the moment she realized how high her interest rate was.

Loans from high-interest installment loans, a brand new product that has gained popularity in recent years, are becoming increasingly common among Canadians with low credit scores or short credit histories. And critics say the loans can be as treacherous to consumers as payday loans.

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Borrowers can only withdraw a maximum of $1,500 through a payday loan, notes Donna Bourdain, a national leader of the anti-poverty group ACORN and acting president of the organization’s East York chapter in Toronto.

“Now, if anyone else wants… then (lenders) just say, ‘Okay, we are providing installment loans’, ” she says.

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ACORN says it has seen a 300 percent increase in the share of borrowers taking high-interest installment loans between 2016 and 2021.

Payday lenders are exempt from federal regulations that can limit the maximum annual interest rate to 60 percent and charge interest rates of up to 500 or 600 percent. But they are also small, short-term loans — and often tightly regulated. According to the Financial Consumers Agency of Canada (FCAC), Canadians cannot borrow more than $1,500 through a single payday loan and typically must pay off the loan from their next paycheck.

High-interest installment loans, on the other hand, are subject to a limit of 60 percent on interest. But they allow Canadians to borrow up to tens of thousands of dollars for up to several years, sometimes resulting in consumers paying more in interest than they received through loan payments.

The public profile of lenders that offer high-interest personal loans also often differs significantly from payday lenders. For example, Zen Loans, a division of EasyFinancials, GoEC, is a Mississauga, Ont.-based alternative lender that counts more than 400 retail locations across Canada.

GoEasy claims an A+ rating from the Better Business Bureau, awards for Best Corporate Culture and Place to Work, and says it has given $3.8 to support the Boys and Girls Clubs of Canada and Habitat for Humanity. Has raised over a million. An easy financially airy storefront on Toronto’s trendy Queen Street East has high ceilings, exposed brick interiors, and a “Proudly Canadian” sign on the window.

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In an email to Granthshala News, Goeasy said its Easyfinancial loans help credit-challenged Canadians rebuild their credit profiles until they can borrow at lower rates from banks and traditional lenders.

“With more than 8.4 million Canadians with non-prime credit scores, our customers are everyday Canadians who are typically turned down by banks and traditional lenders,” the company wrote. “Often met with life circumstances that have negatively affected their credit, they turn to easy financials for financial relief and a second chance.”

Some payday lenders are also offering personal installment loans. On its website, for example, Money Mart mentions installment loans before their “cash-advance” loans, which work like a traditional payday loan.

The company did not respond to multiple requests for comment.

Traditional lenders, such as large banks, also offer installment loans but at much lower interest rates. However, people with low credit scores often turn away.

Granthshala News interviewed borrowers who took out high-interest personal loans and reviewed their loan agreements. All documents have simple language that clearly states the terms of the loan. They allow borrowers to repay part or all of the loan at any time as a lump sum without any penalty.

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But two out of three borrowers told Granthshala News that they did not understand that the loan came with such high interest rates. And two out of three borrowers said their lender contacted them about taking on more loans just months after they signed their first loan agreement. A third borrower said he filed a consumer motion because he could not live with his loan.

In Grimsby, Ontario, Zane, a now retired call-center employee, says that when she signed up for $1,466 sofa financing from Surplus Furniture and Mattress Warehouse in November 2019, she said she didn’t understand why. She will take it out. High-interest personal loan with Easyfinancial.

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Her loan agreement shows that she had borrowed the amount for the sofa, with an additional $395.50 and a $102 fee, totaling less than $1,965. The loan had an annual interest rate of 29.99 percent. The annual percentage rate (APR), which indicates the total cost of borrowing including interest and other charges, was just over 39 per cent.

EasyFinancial provides unsecured and secured personal loans, auto loans and financing for the purchase of goods and services through over 4,000 retailers and merchants such as surplus furniture and mattress warehouses, the company told Granthshala News via email.

The company said that the installment loan provided by EasyFinancial for buy-financing is different from the lease-to-own program for home goods such as furniture and appliances, which is available through EasyHome, another division of GoEC.

Zen says she doesn’t remember receiving communications from EasyFinancials until a few months after she bought the sofa. His first payment was due in early February.

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In mid-March, however, as Ontario went into lockdown due to the spread of COVID-19, Zane said she received a call from an Easyfinancial representative asking her to borrow up to about $5,000 and inquire about it. was pre-approved for He needed to borrow more.

At the time Zane says she, like many of her other coworkers, took a leave of absence out of worry about transitioning to the Barry, Ont.-based call center where she worked.

“I am…

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