Are you looking to borrow money? The following tips may be of interest to you before signing a money loan contract.
There is a cost to borrowing money. Two factors affect the cost of a loan: the applicable credit rate and the term of the loan. The higher the rate and the longer the term, the higher the cost.
Borrowing money involves credit charges. They include all of the fees you will have to pay, in addition to the amount of the loan. Credit charges include interest, administration fees, brokerage fees, storage fees, insurance (other than automobile insurance), 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 loan
Think about checking how much your loan will really cost you. Is it worth borrowing $2,000 but to have to reimburse $2,500 in total? This latter amount represents your total obligation, namely the amount you will have to reimburse. It includes the amount borrowed and all of the credit charges.
Evaluating your ability to pay
The lender is required to evaluate your ability to reimburse the loan. To find out more, refer to the page titled Evaluating One’s Ability to Pay.
Even if a lender agrees to lend you a certain amount of money, it would be wise for you to do your own evaluation by considering the cost of your loan and your other financial obligations, and determining whether or not you can reimburse this loan.
Are you borrowing money from a financing company or a pawnbroker? These businesses must hold a money lender’s permit from the Office de la protection du consommateur in order to conduct their operations.
There are 2 situations where this permit is not required:
- the loan is for a mortgage; or
- the loan was contracted to pay an insurance premium.
Among other institutions, banks and financial services cooperatives, such as credit unions, trust companies or savings companies, are not required to hold this permit.
If a contract for the loan of money you are offered has an annual credit rate that exceeds the Bank of Canada's Bank Rate by 22 percentage points, the lender may also be required to hold a permit of a merchant who enters into a high-cost credit contract.
How to find out whether a lender holds a permit
You can use the Get information about a merchant tool to find out whether a money lender holds the required permit(s).
If the lender does not hold the required permit(s), avoid doing business with that merchant and contact the Office de la protection du consommateur to file a complaint.
The information about your loan must appear in a written contract.
An information box must appear at the very beginning of a contract for the loan of money or be given to you with the contract in a separate document. The information box is one of the following:
- contract for the loan of money where the net capital is paid in one instalment;
- contract for the loan of money at a variable rate where the net capital is paid in one instalment;
- contract for the loan of money where the net capital is paid in a number of advance payments;
- contrat contract for the loan of money at a variable rate where the net capital is paid in a number of advance payments.
See Regulation respecting the application of the Consumer Protection Act, s. 61.0.8 for more information.
The contract must comply with the standard model provided in the Regulation respecting the application of the Consumer Protection Act (s.61.0.7). It must indicate:
- the date on which the contract is entered into;
- the place where the contract is entered into;
- the name and address of the lender;
- the lender’s permit number, where applicable;
- your name and address;
- the amount of money being borrowed;
- the total credit charges and the details of the portion that represents:
- other fees, if applicable;
- the credit rate, and specify whether it is variable;
- the term of the contract;
- your total obligation, namely the amount borrowed and the total credit charges;
- the date on which credit charges begin to accrue;
- the date and amount of the payments required to reimburse the loan in full, as well as the number of such payments;
- where applicable, information on any optional contracts: their nature, charges and your right to cancel;
- information to the effect that you may reimburse your loan in part or in full before maturity, without any fees or penalties;
- where applicable, information on the existence and subject matter of any security given to guarantee the performance of your obligations (such as an pawned item);
- where the lender requires that you have insurance, information to the effect that you may provide insurance you already hold or choose another one.
Other information is required where the contract involves a variable credit rate.
The contract must also include a clause indicating the possibility of:
- cancelling the contract on your own initiative within 2 days following that on which both parties took possession of a duplicate of the contract. This means that both you and the lender must find yourselves back in the situation you were in before the contract was entered into. Each party must therefore return what they have received to the other party;
- reimbursing the loan in full before maturity;
- requesting a statement of account.
High-cost credit contracts
If the contract for the loan you are offered has an annual credit rate that exceeds the Bank of Canada's Bank Rate by 22 percentage points, the lender may have additional obligations. Refer to the section on high-cost credit to find out more.
The money lender must sign the contract first, then allow you to read it, have you sign it, and give you a duplicate.
Once a contract for the loan of money has been signed, 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 for the Loan of Money provides you with all the information on this subject.
After that deadline, you may nevertheless cancel the contract at any time by reimbursing the balance owing.
Last update : February 28, 2023
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The information contained on this page is presented in simple terms to make it easier to understand. It does not replace the texts of the laws and regulations.
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