I am a sucker for cool stuff. Do you remember when the iPhone first appeared? At the time, it seemed that nothing would ever top that. Then came the Tesla cars with features that seemed impossible only a few months ago. The Tesla is not only changing our concept of “the car” but like the iphone, is completely changing how we buy products. So what’s next? Have you heard of “fintech (financial technology)?” Fintech companies are taking the latest in technology and merging it with financial products in a race to create the next best thing. But buyer beware! You need to take a second look at fintech companies who offer debt consolidation services. Instalment loans from some fintech companies can cost you much more than you think.
A fintech instalment loan might only cost you $10 to borrow $100 for 14 days. At first glance, you might feel that is pretty cheap. But in terms of the “APR”, you are paying 261%.
The best way to determine if a fintech product is right for you is to become informed about financial products. For years I was completely uninformed. For example, did you ever notice how many financial offers come with the letters “APR” somewhere in the fine print? Well I used to think that “APR” was short for “approved.” I was surprised to learn that “APR” means Annual Percentage Rate. The “APR” is a very important number. A fintech instalment loan might only cost you $10 to borrow $100 for 14 days. At first glance, you might feel that is pretty cheap. But in terms of the “APR”, you are paying 261%. The fintech companies pride themselves at not being a traditional bank. However, some traditional banks will give you the same loan with an “APR” under 10%. Comparing apples to apples, borrowing $100 dollars at a bank for 14 days would only cost you 30 cents in interest charges at 8%. What would you rather pay, $10 or 30 cents? Now I am not suggesting that everyone is eligible for an 8% rate at a bank or that the banks are better. What I am saying is that fintech instalment loans are not giving us the innovation of an iphone or Tesla.
With interest rates at almost 60% “APR”, fintech instalment loans keep consumers stuck in the cycle of debt.
Fintech companies offer debt consolidation loans that help you combine all your debts into one convenient payment. These may take the form of “instalment” loans. An instalment loan is a fixed payment product with a fixed term at a fixed interest rate. And using these products might not fix your problem. With interest rates at almost 60% “APR”, fintech instalment loans keep consumers stuck in the cycle of debt. Instalment loans are a favoured product at many of the alternative lenders including the fintech group. A recent report from TransUnion indicates that Canadians are flocking to these instruments with default rates soaring.
Don’t fall for the flashy gimmicks on the Fintech websites. These sites are slick with video feeds and pictures of youth having fun. They are designed to hook you when you sign up for free stuff. You may be offered a “chat” with a live person to get you to share your personal information and sign up for products before you have a chance to think. Globe and Mail writer, Kerry Taylor has an interesting take on the fintech approach to getting out of debt.
Get the facts before signing up with fintech for an instalment loan. Beware of all the flash and sizzle. Behind the hype there needs to be credible innovation that gets you back on your feet financially.