Personal Loans: SkyCap Financial, Others Shaping How Canadians Manage Debt
Like many others around the world, Canadians are stretching their wallets to cover expenses such as mortgages, car loans and everyday occurrences. Personal debt levels in some areas of Canada, however, are at an all-time high, forcing those who are in desperate situations to turn to extremely high interest loans.
In Vancouver, the debt to income (DTI) ratio is 242 per cent; in Toronto, 208. What this means is for every dollar earned, $2.42 (or $2.08, respectively) is owed. Nationally in Canada, the DTI is 171. This statistic in part is forcing Canadians to seek personal loans that temporarily allow some financial breathing room.
Personal loan balances in the third quarter of 2018 reached $132 billion, according to the credit reporting agency TransUnion. What’s even more shocking is that many borrowers aren’t even using the personal loans to pay down existing debt.
In the past, personal loans were granted to prime borrowers, those with excellent credit scores. Online lenders – LendingClub, SkyCap Financial and Fairstone, among others – have stepped in to offer services to those with less than stellar credit history.
The Kingston, Ontario-based SkyCap Financial was established in 2013 as a lending company specializing in term loans and also offers a free program, available to their customers, to teach money basics. SkyCap Financial uses a set of criteria when determining a candidate for their loans ($10,000 and under).
Online lending has filled a void for borrowers who would’ve otherwise had less opportunity to obtain even a small loan. Even so, personal loans are bogging down Canadians, and have taken advantage of many who have limited options for financial freedom.
Personal loans are mostly obtained by those who have low to median incomes and come with extremely high interest rates. It’s not that the borrowers are unaware, though – they simply have no other options. Canadians are utilizing payday loans – a small loan granted with high interest rates under the agreement that it will be repaid from the borrower’s next paycheck. This “predatory lending” affects not just low-income borrowers, but wealthy borrowers as well.
Fairstone, another personal lender based in Canada, appeals to those with fair to good credit, offering alternative loans for those who aren’t interested in a payday loan or in dealing with a bank. Like many other financial lenders, they have flexible payment options that often don’t include penalties for early repayment.
Large banks are attempting to compete with online lenders, and that in turn is causing the amount of loans issued to soar. A recent count showed that there 20.3 million personal loans issued via credit unions, private lenders and banks; three years ago, there were only 14.3 million loans issued.