Personal loan agreement: rights and responsibilities

From: Financial Consumer Agency of Canada

Federally regulated financial institutions (FRFI) must provide you with certain important information about your personal loan in your loan agreement or along with it. The information required depends on the type of loan you get. The most important information will be summarized in an information box. The financial institution may provide this information to you in writing, or electronically if you consent to receive required information in electronic format rather than as paper documents.

Fixed interest-rate personal loan

If you apply for a personal loan with a fixed interest rate at a FRFI, the institution must provide you with the following information in an information box at the beginning of your loan agreement or in another document you receive with it:  

  • principal amount—the amount that is being borrowed
  • annual interest rate—the interest rate being charged on the loan
  • annual percentage rate (APR)—the annual cost, expressed as a percentage of the principal, including fees such as service charges, loan origination fees or administrative fees when applicable
  • term—the period of time your loan agreement will be in effect
  • date of advance—the date on which you will start being charged interest
  • payments—the amount of your payments, and when they are due
  • amortization period—the period of time it will take to pay off the loan in full
  • other fees—other fees that may apply, such as an insufficient funds fee

Example: Credit agreement for a fixed interest loan for a fixed amount personal loan

Additional information that must be provided

  • the total of your payments at the end of the term
  • of that total, how much you will have paid in interest charges at the end of the term
  • the fact that your payments will be applied first to cover interest and other charges, and then to the outstanding principal
  • optional services you accepted (e.g., loan insurance), how much they cost and what will happen (in terms of rebates, charges or penalties) if you decide to cancel these services
  • a description of the property (if any) being provided as security for the loan

Variable interest-rate loan

If you apply for a loan with a variable interest rate at a FRFI, the institution must provide you with the following information in or with your loan agreement or along with it:

  • principal amount—the amount that is being borrowed
  • annual interest rate—the interest rate being charged on the loan
  • determination of interest—how the interest rate is calculated
  • annual percentage rate (APR)—the annual cost, expressed as a percentage of the principal, including fees such as service charges, loan origination fees or administrative fees when applicable
  • term—the period of time your loan agreement will be in effect
  • date of advance—the date on which you will start being charged interest
  • payments—the amount of your payments, and when they are due
  • amortization period—the period of time it will take to pay off the loan in full
  • other fees—the other fees that may apply such as a discharge fee, default charge or insufficient funds fee

Additional information that must be provided

  • based on your interest rate, an estimate of the total amount you will pay by the end of your term
  • an estimate of the total amount of interest you will pay during the term
  • if interest rate variations are linked to another rate, such as the prime rate, the financial institution must provide you, at least once a year, with a disclosure statement containing the following information:
    • the interest rate and outstanding balance at the beginning and end of the period covered by the statement
    • the amount of each instalment payment for the upcoming period, based on a forecast using the interest rate in effect as of the date of the disclosure statement.

For variable interest-rate loans with fixed payments, the lender must also include the following details in the agreement or disclosure document:

  • the annual interest rate at which your loan payment would not cover the interest due for the period (sometimes called the “trigger rate”)
  • the fact that if the interest rate increases during your term, your amortization period will be longer.

Notes

  • If the interest rate reaches the trigger rate, your lender may require you to increase your payments. Check the terms of your agreement.
  • If your amortization period has lengthened, your lender may require you to increase your payments at the next renewal period to bring your amortization back in line with the original amortization period.

What you should do if you feel your rights are not being respected

If you feel that a FRFI is not respecting your rights, contact the Financial Consumer Agency of Canada.

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