A cautionary message this week from the Financial and Consumer Services Commission in New Brunswick (FCNB), which is looking to educate consumers about the risks of payment plans and the true costs of borrowing.
It also comes with a reminder for people who FCNB says “may be pressured into making large purchases” for fear of missing out on large items increasingly in short supply.
Alaina Nicholson, FCNB’s director of consumer affairs, says low inventory on many consumer goods stemming from the pandemic is making consumers feel pressured to act fast when buying big-ticket items like a car.
“Consumers need to remember that being approved for a loan or credit product does not always mean they will be able to afford the payments,” says Nicholson.
He says increased inflation has led to rising prices for day-to-day products like food, gas, and household goods, along with rising interest rates increasing the cost of borrowing for consumers.
FCNB is also urging consumers to avoid feeling rushed to sign finance documents due to appointments close to closing, prolonged waits to meet with financing agents, or scarcity of inventory. Instead, it says, take the time to review or understand loan terms.
Tighter clamps on lending and increased borrowing costs have led retailers to offer longer terms on finance plans and other perks to entice buyers.
Overshadowing all of this is the unflinching demand in the auto and housing markets struggling to keep up amid low inventories.
A new borrowing landscape
When The Great Recession took hold in 2007, the economic fallout, along with historically high fuel prices, meant buying big-ticket items like cars became more challenging; many potential buyers found it more difficult to secure financing after banks and other lenders slowed borrowing.
Before that recession, automakers offered a variety of special options, from zero-percent financing to cheaper lease deals, aggressively competing with each other for every potential buyer.
Fast forward to 2022’s rocket rise of inflation, supply chain issues, and (again) historically high fuel prices, and it’s become commonplace to see many car lots bare of new inventory. That’s forcing buyers to travel great distances to secure their model of choice, or in several cases, choose to wait weeks or months for their new car to be delivered.
While credit remains widely available and as necessary as driving for many Canadian households, increased costs brought on by higher lending rates haven’t kept people away from making larger purchases.
Automakers and other financers have created reasonable payment plans to adjust. Some are offering zero-percent loans for up 84 months, a long time considering that will take seven years to fully pay off. But a loan that long comes with the trade-off of carrying a more affordable payment over the term for buyers.
Read the disclosures
While some consumers have been able to make financing terms work by relying on lofty extensions of loan terms, signing for initial cash back on purchases, or payment-free periods up front, FCNB worries that New Brunswickers often don’t understand everything that they’re agreeing to before signing the dotted line.
Under New Brunswick’s Cost of Credit Disclosure and Payday Loans Act, a lender must give consumers a disclosure statement before entering into a contract.
The statement also is required to explain the total cost of borrowing and other important information.
Before agreeing to any loan or credit product, FCNB maintains consumers need to understand how much it will cost them to borrow (including fees, interest rate, and other charges) and how long it will take to pay back.
It adds those making large purchases should also make sure the financing payments fit into their budget, especially a budget susceptible to change in a variable rate environment.
“Before entering into a big financial commitment, consumers need to fully understand the costs involved and what they are agreeing to when signing a contract,” added Nicholson.
The act, however, doesn’t cover high-pressure sales tactics used to entice buyers.
Consumers also need to be aware of these tactics, which may put them at risk regardless of whether the person is registered to arrange financing.
“Consumers should feel comfortable understanding their financing agreements and should take the time to walk away and consider the proposed financing terms before they sign on the dotted line,” Nicholson said. “Feeling pressured or rushed into signing a contract might be a sign that you should step back and review to make sure the terms are favourable to your personal circumstances.”
FNC states another factor, the fear of missing out, can also drive some people to make purchases they might necessarily not be able to afford or even fully understand.
Online terms, hidden implications
For consumers to get a full understanding of any purchase agreement, (actually reading the “Terms of Use” often disclosed for anything you buy, particularly online), FCNB cautions on its website that consumers should avoid simply clicking or signing to indicate they have read the fine print without actually reading it.
It notes while it’s extremely common for people to accept terms of use online without reading, important information such as how companies will use and share your personal info is contained in those terms.
FCNB adds that in some cases, clicking to buy something online may lead you consenting to having your information shared with other credit lenders, organizations, or market research firms.
Tyler Mclean is a reporter with Huddle, an Acadia Broadcasting content partner.
