Instalment loans come with hefty charges

TORONTO — Anna knew she wanted to lose weight. And there was a surgery that would get it done. The problem was the 49-year-old Hamilton teacher didn’t have the cash to pay for gastric lap band surgery.

The procedure at a Toronto clinic five years ago cost $18,000, but by the time she’s finished paying — she still has a few months to go — her bill will have grown to $26,000, swollen with finance charges tacked on by the company loaning her the money for the procedure.

“We were all desperate to lose the weight, so we were willing to pay the $26,000,” says Anna (not her real name), about a group of patients at the clinic who used financing.

The company that performed the procedure went out of business, so she has none of the included aftercare, which is adding to her costs.

Despite the issue with the clinic, she thinks it makes sense “to borrow for something like this,” but Anna warns the finance charges are something she wasn’t banking on.

Her type of debt, which rating company Equifax Canada calls an instalment loan, is the fastest growing segment of the market. In the third quarter of 2014, instalment loans ballooned by 7.2 per cent from a year ago to $134 billion.

We can’t blame instalment loans for our record household debt, which reached 163.6 per cent of disposable income in the first quarter of this year, according to Statistics Canada. But the ability to finance anything and everything is adding to a total debt bill that Equifax says reached $1.53 trillion at the end of the third quarter of 2014.

There is almost nothing that can’t be financed anymore. Furniture, funerals, pet care, recreational vehicles and cosmetic surgery will all find a financial backer with good enough credit.

Dentists have long used financing, some of them even providing the credit, for patients who don’t have insurance coverage for costly procedures that plans might deem cosmetic.

These days you can walk into most clinics and find brochures offering great rates on procedures like veneers, which can cost $ 40,000 to outfit your entire mouth.

“(You see financing) on any long-term procedures that are off the normal dental plan,” says Dr. George Christodoulou, general partner with Altima Dental.

The default rates on instalment loans remain low, so banks and other financial institutions continue to fund them.

Consumers love them because the loans come with record low interest rates, but a payment schedule that will keep that debt on your books for years, or even decades. Everything becomes affordable on a monthly basis.

Laurie Campbell, executive director of Credit Canada, says people are borrowing to finance things that are just too expensive to pay for upfront.