Interest, Insurance & Optional Services

Companies that extend credit or lend money usually require that the person pay back the money with interest. This is typically done through monthly payments made up of the principal and interest amounts. The principal is the amount you pay per month to repay what you borrowed. The interest amount is a percentage of the amount left owing. If a payment is missed, you may be charged interest on the amount owing, including past interest. This is sometimes called interest on interest.

Whatever the interest rate, the faster you pay off the debt the less interest you will pay. In Saskatchewan, except for mortgages, you are allowed to pay off the full amount of the loan at any time without penalty. You can also pay more than is due on any payment date. If you pay the full amount owing, you are entitled to a refund of a portion of any finance charges you paid for the loan.

People often ignore provisions in lending agreements that deal with interest charges. It is important for people to know just how much extra it will cost them to pay later for goods or to borrow money. People may want to shop around for the best deals or reconsider a loan or purchase if the cost is too high.

Borrowing money or receiving goods on credit almost always results in the borrower paying interest or credit charges. However, it is common to see offers to pay no interest until a certain date. Saskatchewan law requires creditors who make interest-free offers to tell consumers about any strings that may be attached to the offer. For example, an ad that entices people to buy furniture with no money down and no payments or interest until a year later must also disclose:

• whether interest still builds up during this period but does not have to be paid
• if there are any conditions attached to the offer and what those conditions are
• the amount of interest that must be paid if the conditions are not met

If the ad does not disclose the information required by law, it will be assumed that unconditional interest-free credit is being offered. Similarly, if a creditor offers to allow you to miss a payment and make it up later, the creditor must tell you whether you will be paying interest on the missed payment.

Under the Criminal Code, the maximum amount of annual interest allowed by law is 60%. Charging an annual interest rate higher than this is a criminal offence and could result in up to five years in jail. The Interest Act sets out that, if interest is payable under an agreement but no rate is set out, the interest rate will be 5% per year.

In Saskatchewan, people are also protected from excessively high interest rates through The Consumer Protection and Business Practices Act. This law prohibits unfair business practices. An example of an unfair practice is to include harsh or one-sided terms in an agreement to take advantage of a customer. The law also does not allow a business to sell goods at a price that grossly exceeds the price that a consumer might pay for the goods elsewhere. Unreasonably high interest rates could violate this law.

Sometimes, creditors require you to purchase insurance on a loan. Creditors may themselves sell this type of insurance. However, under Saskatchewan law, you can purchase loan insurance from another company. You may want to do this if you are able to get a better price elsewhere. The creditor has the right to not agree to a different insurer, but only if there are reasonable grounds.

When you enter into a credit arrangement, you may agree to buy other optional services. For example, you may buy a vacuum on credit and also agree to purchase repair and maintenance services. If you later decide you do not want these services, you can cancel with 30 days' notice.