Purchasing goods or services on credit involves costs. Usually, the longer the term to reimburse your loan, the higher the costs.

Credit charges

Credit charges include all of the fees you will have to pay, in addition to the amount that is financed. Credit charges include interest, administration fees, brokerage fees, insurance (other than automobile insurance, among other things), etc. Check how much these credit charges add up to. They are also expressed as an annual percentage: the credit rate.

The real cost of a credit purchase

Think about checking how much your instalment sale contract, i.e. your financing agreement, will really cost you. Is it worth purchasing a $2,000 item but have to reimburse $2,500 in total, for example? This latter amount represents your total contractual obligation, namely the amount you will have to reimburse. It includes the amount financed and all of the credit charges.

Evaluating your ability to pay

Merchants who sell you goods or services, or those who finance your purchase (if they approved the contract) are required to evaluate your ability to pay. To find out more, refer to the page titled Evaluating One’s Ability to Pay.

Even if a merchant agrees to sell you goods or services on credit, it would be wise for you to do your own evaluation of whether or not you will be able to reimburse this credit. To do so, you can consider the total amount you will have to reimburse and your other financial obligations.

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All of the information about an instalment sale must appear in a written contract. Such a contract must include certain mandatory clauses.

Make sure the contract makes reference to everything you have negotiated with the merchant.

If you have entered into an instalment sale contract, i.e. a financing agreement, you have a very short deadline by which to change your mind. The law grants you 2 days. The page titled Modifying or Cancelling a Contract provides you with all the information on this subject.

The Office recommends that you make a well thought-out decision before signing a contract. After these 2 days, you may not go back on your decision, unless:

• your contract includes a high annual credit rate that exceeds the Bank of Canada's Bank Rate by 22 percentage points;
• you come to an agreement with the merchant;
• you obtain a court judgment in your favour.

When financing a purchase, taking out insurance may help protect you or your loved ones in case of disability or death.

If you already have insurance, check whether it is sufficient, or take out additional insurance if need be.

Mandatory insurance

What if the merchant requires that you take out insurance before entering into the contract? This must be clearly indicated in the contract, which must include a mandatory clause to that effect.

You are under no obligation to take this insurance with the merchant in question. You always have the option of fulfilling this condition with an insurance contract you already hold, or shop for one elsewhere.