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When the Covid-19 Pandemic first hit, many Canadian’s were hesitant to pursue credit. Now that we have all began to adapt to the changes, more and more people are now looking to return to some sort of normalcy, and that includes making large purchases that many cannot afford to buy outright. Due to this, many Canadian’s are pursuing alternative lending methods in order to get the automobile they need.

Understanding what comes with an alternative lending loan

People with credit hiccups in their past, or low income by the lender’s guidelines are known as “sub-prime” or “credit constrained” customers. These customers rely heavily on these alternative lending solutions, loans from non-banks or non-traditional lenders.

In exchange for offering approvals to clients who are considered to carry a greater risk of defaulting on their loan, these lenders collect higher than typical interest rates and sometimes add fees that other lenders might not. These can be higher than usual NSF fees, missed payment penalty fees, collection fees, and loan closing or origination fees, sometimes known as the document fee. These fees are legal, and part of the loan contract that you are agreeing to when you sign and are usually there as added incentive to make your payments on time.

We want to make sure our customers are aware of these differences because the alternative lending market in Canada is less directly regulated and can expose customers to greater risk if they are not aware.

According to LoansCanada.ca, a large percentage of customers who enter alternative lending loans feel as though they were pressured into the loan because the offer would be taken off the table shortly (whether this is just a tactic by other dealers or they truly felt the offer would be pulled remains to be seen.) What is worse, is in these high-pressure situations, the customer was not able to carefully review the material before agreeing to the loan, and now they have agreed to conditions they were not aware of or did not fully understand.

Being under pressure and making a financial decision does not make sense.

We recommend that before you sign on the dotted line, that you step back for a few hours to review and understand the terms and conditions, ask us questions, and relieve yourself of some of the stress that comes with a new purchase. If English is not your first language, we would recommend having someone you trust review the information with you so you can be confident you understand the terms you are agreeing to. Do not be afraid to ask us questions either, we are here to help!

Key things to make sure you pay close attention to:

  • Total cost of the purchase
  • How much the payments are
  • Payment frequency (Are you paying monthly, bi-weekly, semi-monthly?)
  • Interest rate
  • Does this fit your budget?
  • Additional costs (fuel, insurance, maintenance, etc.)

Purchasing a new vehicle is stressful, we get it! It is not something that happens very often compared to other purchases, it is a high dollar amount, and it is something you are going to use every day once you take possession. Then you find out that you do not qualify at a typical lender your friend might have, and you need to look at alternative options. Finally, you get into loan agreements with unfamiliar terms and legal jargon and things get even more stressful.

Let’s eliminate a lot of the stress and work together to make sure that when you do decide to upgrade your vehicle, that you’ve taken all the necessary steps to make a well-informed decision and not suffer buyer’s remorse days, weeks, or months down the road.