Instant loan: what you need to know!

Highly popular on the radio and the web, and also known as micro-loans, quick loans, instant loans, or payday loans, these types of loans fall under the category of “no-credit-check loans.” They typically offer small amounts, ranging from $750 to $1,500, but come with very high interest rates. The experts at Jean Fortin & Associés provide insight into identifying micro-loans, understanding their risks, and exploring alternatives if you’re facing financial difficulties.

Instant loans, often referred to as “emergency” micro-loans, are easily recognizable and usually accessible online within 24 hours. They are often advertised with phrases like “no credit refused,” “money deposited immediately,” or “no credit check required.”

These micro-loans are generally short-term, requiring repayment within 4 to 6 months, with interest rates exceeding 100% when “fees” are included. Frequently, such loans do not address the root financial issue but merely buy time – at a cost much higher than expected.

The target audience for micro-loans is typically individuals in urgent financial need, requiring funds immediately. Traditional financial institutions cannot meet such urgent needs as they are required to conduct credit checks before approving loans.

Moreover, borrowers seeking quick loans often have poor credit histories, preventing them from securing loans from financial institutions.

When these factors are combined, quick loans often become the only immediate solution available.

Micro-loans come with significant drawbacks that can exacerbate financial difficulties if not repaid promptly. Key disadvantages include:

• High interest rates: In Quebec, quick loans are capped at an annual interest rate of 35%, but the total cost can quickly exceed 100% due to various associated fees.
• Hidden fees: Additional charges may include administrative fees, late fees, renewal or extension fees, and charges for rejected bank withdrawals.
• Limited loan amounts: While loan amounts are typically small, borrowers may take on multiple micro-loans, increasing financial risks.
• Over-indebtedness risk: The high interest rates and additional fees can heavily burden one’s budget, increasing the likelihood of over-indebtedness.

Before opting for instant loans, carefully evaluate all alternatives with a licensed insolvency trustee and ensure you can repay to avoid financial complications.

The Office of Consumer Protection has strengthened laws governing quick loans. Since amendments to the Consumer Protection Act in 2017, severe penalties apply to companies offering loans without conducting credit checks or analyzing clients’ financial capacity. This initiative has significantly reduced the popularity of instant loans.

However, despite warnings urging caution when dealing with non-financial institution lenders, it’s strongly recommended to thoroughly research lenders. These measures aim to protect consumers from practices that further burden those already in financial distress.

When faced with financial difficulties, instant loans can be included in a consumer proposal or bankruptcy, allowing you to avoid paying the exorbitant fees demanded by creditors. However, if you opt for debt consolidation, you will need to repay the full micro-loan amount, including the high fees.

While instant loans can provide a temporary solution, they carry a high risk of over-indebtedness. It is crucial to understand the loan terms and consider alternatives before committing. If you’re already over-indebted, consider consulting a licensed insolvency trustee for a free evaluation of your situation and tailored solutions.

By Pierre Fortin
Jean Fortin & Associés
Personal Finance Advisor
Licensed Insolvency Trustee