The Quebec Microlenders Association is a non-profit organization that aims to bring together Quebec companies operating in the microloans industry and to regulate their practices in order to provide clients with:
1) Clear and accurate information
2) Ethical and non-misleading advertising
It is run by conscientious professionals with long-standing expertise in the microloan field, eager to restore consumer confidence. All members are rigorously audited prior to admission and on an ongoing basis thereafter to ensure that they meet the Association’s standards at all times.
What are the conditions to be part of the AMPQ?
- Be a business operating in Quebec and offering microloans.
- Respect a strict code of ethics with respect to clients and competitors in the field.
- Provide clear, precise and accurate information to its clients regarding the real costs of the loans granted and what the different fees charged are for. Among other things, provide the actual effective rate and the calculations used to establish it.
- Do not engage in false advertising.
- Put the consumer’s interest ahead of the lender’s.
What is a microloan?
A microloan is a loan that is made outside of banking institutions, that is, between a consumer and a private company. The amounts are generally small (less than $1000), which is why it is called microcredit. The companies in this field generally offer loans quickly, at any time, with the minimum allowed by the law as a credit investigation, but with higher interest rates than in a banking institution, similar to the interest rates charged by some credit cards offered by chain stores.
What does “Interest Capitalization Frequency” mean?
This is the frequency at which interest is calculated and added to the principal of the loan, before reducing the total by the amount of the payment received. For example, most bank loans are repaid in monthly installments and interest is also capitalized monthly. This is known as simple annuities. However, if the interest is compounded and calculated daily (like most credit cards), but the payments are monthly, then it is called a compound annuity.
The interest rate should be evaluated in terms of how often it is capitalized (annually, monthly, weekly, daily). A nominal rate that is capitalized, i.e. calculated, every year is lower than a rate (of equal value) that is capitalized every day. This means that the amount you will have repaid at the end of your loan will be lower.
This is because if the rate is calculated daily (every day), the daily interest amount is added to the loan. This means that on the second day, you pay interest on the first day’s interest, and so on until you make your payment. So your debt balance has increased from the time you took out the loan.
For example, a nominal interest rate of 20% per year, compounded daily, equals an interest rate capitalized annually of 22.13%. If you borrow $1,000 for one year, payable at maturity at 20% per annum compounded daily, you will have to pay $1,221.34 to discharge your debt, not $1,220.00 as the contracted rate may suggest.
A nominal rate of 24% per year, capitalized monthly (each month), equals an effective interest rate of 26.82% (so you pay 26.82% interest). On a $1,000 loan, this equals $268.20.
A nominal rate of 24% per year, capitalized daily (every day), equals an effective interest rate of 27.11% (you pay 27.11% interest). On a $1,000 loan, this equals $271.11.
A nominal rate of 24% per year, capitalized annually (each year), equals an effective interest rate of 24% (you pay 24% interest). On a $1,000 loan, this equals $240.
Does your lender charge you any other fees, such as a bank fee of $0.50 per withdrawal from your account? This increases the effective rate of your loan.
Brokerage fees? Be careful, because brokerage fees are clearly prohibited by the Consumer Protection Act (CPA). Many microloan companies used to charge what they called “brokerage fees”. This practice is now clearly prohibited by the new CPA, which went into effect in two stages on August 1, 2018 and 2019. Many small loan companies, negligent or ignorant of the Act, have not changed their practices despite the new Act taking effect. Take advantage of their ignorance: under the Act they lose the right to the income they charge you, including interest. You may only have to pay them back the principal you received.
Inquire at the Office de la Protection du Consommateur (OPC). You could save a lot of money and even be reimbursed for what you overpay.