As Canadians keep racking up debt, new types of businesses are cropping up across Canada that target those desperate to pay off what they owe or rebuild their credit.
Some of these companies present themselves as financial innovators catering to an under-served slice of the market. But the Financial Consumer Agency of Canada (FCAC), the federal financial consumer protection watchdog, is warning Canadians that these businesses generally charge fees and high-interest rates. Some of them over-promise, and some are misleading, according to FCAC.
Among the relatively new products available to Canadians with poor credit scores or little credit history are so-called savings or credit repair loans. These loans, companies that offer them say, will help you build or repair your credit score if you make timely repayments.
Lending to borrowers with poor or no credit history is generally done through secured credit, meaning that to borrow, say, $1,000, you need to leave $1,000 with the lender as a security deposit. This type of borrowing is meant to show that you can make disciplined debt repayments, rather than to gain access to advance funds for expenses for which you don’t have cash at hand.
Unlike traditional secured credit, some savings loans do not require any cash advance, according to documents reviewed by Global News. A lender will set aside the amount of the loan as a security deposit and gradually grant customers access to the funds as they make payments, which count as debt repayments on the client’s credit report.