More and more Canadians are turning to installment loans as high-interest payday loans continue to build a bad rap in the alternative financing world (with charges equivalent to annual percentage rates, or APR, of more than 600 per cent in some provinces).
You likely know someone who has used an installment loan before. This catchall term extends to personal and commercial loans such as student loans and car loans. In the alternative lending community, installment loans are any type of lump sum financing that is repaid through regular scheduled payments (or installments) over a scheduled period of time, typically over one to three years. The amount of credit usually ranges from $500 to $10,000. These are often offered by online lenders to borrowers who do not qualify for traditional bank loans because their low credit scores fall short of major banks’ qualifying threshold.
Installment loans are the bread and butter of Magical Credit Inc., one of the trusted leaders in a growing sea of secondary financiers. The Toronto-based company provides loans between $2,000 to $10,000 on one or two-year terms. These types of credit can help you deal with the unexpected expenses, such as a car repair or uninsured medical bills, during a household cash crunch. In an overstretched population that continues to rack up consumer debt at staggering levels, living one paycheque to the next, an installment loan gives you the breathing room to cover even the expected costs, like hydro bills or night classes.
“Taking an installment loan can help you consolidate your various accumulated debt. You will have these smaller payments, which allow you to live within your paycheque and help you pay off your debt, according to Magical Credit general manager Kevin Silver. “An installment loan is a fantastic solution to people stuck in the payday loan cycle with steep payments, giving them a real opportunity to get themselves back on track – as long as the lender is transparent in what it is offering,” he added.
Silver cautioned to read beyond the first page for hidden fees that lead to unaffordable extra payments. “Magical Credit wants to be a feasible solution. We are totally transparent in that there is an end to the loan you take. We don’t push refinancing. We don’t encourage taking more than what you need,” he said.
When used effectively, installment loans can be a long term solution to get out of a toxic debt cycle and learn to budget. “When you take a loan of x-amount of dollars, you know what you’re going to have to budget for the next 24 months to pay off your loan,” Silver said.
Installment loans also help improve your credit score, opening the doors to more mainstream borrowing channels down the road. However, if a borrower defaults on their installment loan, it can effectively close their doors to qualifying for prime or subprime lenders in the future, Silver warned.
Magical Credit’s annual interest rates start at 23%, and can reach 59.7%, depending on the term, amount and credit history – welcome figures in contrast to the staggering APRs associated with payday lenders. The online lender accept borrowers with “non-traditional sources of incomes,” including employment insurance, pensions or baby bonuses. Potential borrowers on public subsidies can also qualify, though their loan repayment period is capped at 12 months.
“We are a human-oriented process – it’s not all numbers,” Silver said. “We don’t look at credit scores at all. We have processors who look at each person’s unique situation, and we try to determine what the best course of action is for them.”
The company’s ultimate aim is to help their clients back on their feet financially. While an installment loan is intended as a one-time, lump sum dollar amount, the gains can set you on a lifetime path of financial independence, according to Silver. “We emphasize to our loan officers that it’s not just about the dollar. We understand people are coming to us for money. But what we offer is worth more than the dollar value,” he said.
“It’s the education component that sets us apart. After reviewing a loan application, we offer a solution and advice on how to get them back on track and build their credit before it gets too late.”
Magical Credit offers installment loans with fast and easy approval, and cash in your account in just a couple days.