Planning to Borrow, Revised Edition
A Practical Guide to Consumer Lending Practices in Canada

Steve Bang     

Captus Press, ISBN 978-1-55322-373-3 (2018)
320 pages, 650 g, 8 X 10, $38.75 (US$31.00)
 

Whether you are planning to borrow and looking for the best lending options to meet your needs, or you are a financial advisor who has clients that are planning to borrow and asking for strategies that will help them navigate the complex world of consumer credit, this is the resource for you. Planning to Borrow was written to help you understand consumer lending practices as they exist in Canada today and provides strategies for effectively using the wide range of lending products available.

 

If you are learning to become a lending offer (like Craig, our lender-in-training at Everyday Bank), the realistic cases found in each chapter give you the opportunity to understand how a lending officer should review a customer’s loan request to determine whether to approve it, while also learning what you can do to help meet your customer’s borrowing needs. Throughout the book you will find tips and recommendations designed to save money for borrowing customers while improving their access to lending products.

 

This revised edition of Planning to Borrow was necessitated by the new federal regulations related to mortgage financing, including a tiered approach to mortgage default insurance and the introduction of the mortgage stress test. The author also took the opportunity to enhance the content by adding new topics, such as credit score, borrowing from an employer, letter of credit, and by expanding discussion on areas like mortgage renewal and mortgage pre-approval.

 

If you are like most Canadians, you will find yourself borrowing money at some point in your life. The information provided in this book will help prepare you for the journey you will take into the land of consumer credit when you are planning to borrow.

 

For all Readers, this book is not only easy to understand and fun to read, it is also a great resource:

  • Gain a better understanding of consumer credit and what lending vehicles are available in the market.
  • Learn how to position yourself to be approved for credit when you need it.
  • Learn how to use and better manage your credit.

 

For instructors teaching personal finance, consumer credit and lending, this is a great textbook for your students:

  • Provide basic concepts and useful soft skills required for their future profession.
  • Covers the lending process from start to finish.
  • Introduce consumer credit practices commonly used by lending institutions in Canada today.
  • Offer extra tips and strategies for credit planning in the “The Advisor’s Corner.”
  • Improve knowledge retention by immersing students into solving real life scenarios at the start of each chapter: a teaching technique proven to engage students and help them retain knowledge when the case is taken up.
  • Stimulate class discussion by including scenarios with credit issues that are common in every day practice.

 

For practitioners this book offers:

  • A fresh review of current credit concepts and credit basics.
  • A view of the lending process from all sides:
    • The lenders
    • The borrowers
    • The financial advisors
  • Tips and strategies for credit planning.
  • A handy resource for junior staff and curious clients.

 

Table of Contents   top

Dedication •  Preface to the Revised Edition  •  Preface  • Acknowledgements

Introduction

Chapter 1     Capacity to Pay

Discussion Case: Preston’s New Car

Total Debt Service Ratio (TDSR)

What Payments Are Included in the TDSR and Why

What Payments Are Not Included in the TDSR and Why

Why a 40% Limit on the TDSR?

The Advisor’s Corner

Preston’s New Car — Case Solution

Practice Case

 

Chapter 2   Credit History of the Borrower

Discussion Case: Courtney Wants to Consolidate

What Is a Credit Bureau Report?

How Lending Institutions Use Credit Bureau Reports

Credit Bureau Report Accuracy

Credit Score.

Additional Ways to Investigate Credit History

How Do You Mitigate Poor Credit History?

The Advisor’s Corner

Courtney Wants to Consolidate — Case Solution

Practice Case

 

Chapter 3    Character of the Borrower and Market Conditions

Discussion Case: Our Customer’s Son Dustin

Character

Employment • Living Arrangements • Education • Marital Status • Ability to Manage Money • Honesty

Market Conditions

Stability of the Economy • Stability of the Industry/Company • Impact of Inflation • The Value of the Canadian Dollar • Government Policy • Potential Interest Rate Fluctuations • The Advisor’s Corner

Our Customer’s Son Dustin — Case Solution

Practice Case

 

Chapter 4     Capital Worth of the Borrower

Discussion Case: Lily and Eric’s Cottage by the Lake

How Do We Determine Capital Net Worth?

How Does Equity Reduce Risk?

What Does Capital Worth Tell Us about a Customer?

The Advisor’s Corner

Lily and Eric’s Cottage by the Lake — Case Solution

Practice Case

 

Chapter 5     Collateral Available to Secure the Loan

Discussion Case: Mark and Bailey Buy a Farm

Safe Loans versus Sound Loans

Options Available for Securing a Loan • Personal Guarantee and the Promissory Note • Cash and Cash Equivalents • Principal Residence • Other Real Estate • Stocks, Bonds, and Mutual Funds • Motorized and Recreational Vehicle • Stocks in Private Companies • Personal Items • Co-signor • Equity Lending

The Advisor’s Corner

Mark and Bailey Buy a Farm — Case Solution

Practice Case

 

Chapter 6    Mortgages

Discussion Case: Ramon and Jada Buy Their First House

What Is a Mortgage?

Gross Debt Service Ratio (GDSR)

[1] Expenses Included in the Gross Debt Service Ratio

Mortgage Default Insurance

The Mortgage Stress Test

Mortgage Payment Options

Payment Frequency Makes a Difference

Mortgage Payments and Property Tax

Mortgage Interest Rates • Fixed Rate versus Variable Rate Mortgages • Length of the Term of the Mortgage • Open versus Closed Mortgages

Mortgage Special Features

Prepayment Options • Deferred Payment Option • Portability Option • Assumability • Mortgage Cash-Back Offers • The Mortgage Cash Account

Homeowner Mortgage / Line of Credit

Buying a Newly Constructed Home (New Construction Financing) • Builder Financing • Progress Draw Mortgage

Mortgage Penalties • Three-Month Interest Penalty • Rate Differential Penalty

The Mortgage Renewal Process

The Home Purchase Process • Mortgage Pre-approval • Offers and Condition • Appraisals • Home Inspections • The Role of Your Real Estate Agent • The Role of Your Lawyer • Title Insurance • The Closing Process

The Advisor’s Corner

Ramon and Jada Buy Their First House — Case Solution

Practice Case

 

Chapter 7    Other Lending Product Options

Discussion Case: Selecting the Appropriate Loan Product

How Lending Institutions Make a Profit Lending Money

How Interest Rates Are Determined in Canada

Fixed Repayment Loans • Amortization • Interest Rates on Fixed Repayment Loans • Repayment and Penalties • Fixed Repayment Loan Renewals

Revolving Loans 

Common Types of Revolving Loans and Their Uses • Overdraft Protection • Credit Cards • Line of Credit • The Revolving Loan Renewal Process

Interest-Only Demand Loans • Examples of Interest-Only Demand Loans • The Demand Loan Renewal Process

The Advisor’s Corner

Selecting the Appropriate Loan Product — Exercise Solution

Practice Exercise

 

Chapter 8    Loan Structuring

Discussion Case: Marjorie and Doug Need a Car

The “Art” of Credit Portfolio Structuring

Lending to High–Net Worth and Complicated Customers

The Advisor’s Corner

Marjorie and Doug Need a Car — Case Solution

Practice Case

 

Chapter 9    The Lending Process: From Beginning to End

Discussion Case: A Day with Corrie: Learning the Ropes of Lending

A Summary of the Lending Process

1.       Taking a Loan Application

2.       Investigation and Verification

3.       Approving the Loan

4.       Relaying the Final Decision to the Customer

5.       Preparing the Documentation

6.       Closing the Loan with the Customer

7.       Advancing the Funds

8.       Registering the Collateral

The Advisor’s Corner

Practice Exercise

 

Chapter 10    Lending Institution Options

Discussion Case: Why Companies Offer Loans

Chartered Banks and Trust Companies • How Do Banks Profit by Lending Money? • Why Borrow from Banks? • Banks Are Conservative Lenders!

Credit Unions • Advantages of Borrowing from Credit Unions • Disadvantages of Borrowing from Credit Unions

Insurance Companies • Advantages of Borrowing from Insurance Companies • Disadvantages of Borrowing from Insurance Companies

Investment Companies • Advantages of Borrowing from Investment Companies • Disadvantages of Borrowing from Investment Companies

Credit Card Companies • Advantages and Disadvantages of Borrowing with Credit Cards

Finance Companies • Advantages of Borrowing from Finance Companies • Disadvantages of Borrowing from Finance Companies

Private Money Lenders and Equity Lenders • Advantages of Borrowing from Private Money Lenders • Disadvantages of Borrowing from Private Money Lenders

Payday Loan Companies • Advantages of Borrowing from Payday Loan Companies • Disadvantages of Borrowing from Payday Loan Companies

Pawnbrokers • Advantages of Borrowing from a Pawnbroker • Disadvantages of Borrowing from a Pawnbroker

The Advisor’s Corner

Practice Case

 

Chapter 11    Unique Loan-Related Products and Lending Solutions

Discussion Case: Amy Is Getting a New Car

Leasing a Car versus Buying a Car • The Car Leasing Process • Advantages of Leasing • Disadvantages of Leasing

Dealer Financing versus Borrowing from a Lending Institution • How Dealer Financing Works • Advantages of Dealer Financing • Disadvantages of Dealer Financing

Tax Advantages of Borrowing • Borrowing to Invest in Stocks, Bonds, and Mutual Funds • Borrowing to Purchase Rental Property • Borrowing to Invest in a Business

Using Margin Accounts to Purchase Stocks and Bonds

Government-Funded Student Loans

Letter of Credit
Borrowing from Your Insurance Policy

Borrowing from Your Employer

The All-in-One Account

Using Equity to Fund Retirement (Reverse Mortgages) • What Is a Reverse Mortgage? • The Reverse Mortgage Market in Canada • The Pros and Cons of Reverse Mortgages

Credit Insurance • Credit Insurance Options • Credit Insurance as a Condition of Approval for the Debt • Purchasing Insurance from Lending Institutions versus Insurance Companies

The Advisor’s Corner

Amy Is Getting a New Car — Response

Practice Case

 

Chapter 12    Small Business Lending to Self-Employed Individuals

Discussion Case: A Big Contract for Chris

Company Structure • Sole Proprietor • Partnership • Incorporated Company

Lending to Existing Small Businesses • Verifying the Income Generated by a Small Business • Determining a Company’s Debt Servicing Ability • Investigating a Company’s Credit History

Lending to a New Business

Common Business Loan Collateral Requirements • Chattel Mortgage • General Security Agreement • Guarantee • Independent Legal Advice

Common Business Loan Product Options • Operating Line of Credit • Demand Loan • Commercial Mortgage

The Advisor’s Corner

A Big Contract for Chris — Case Solution

Practice Case

 

Chapter 13    Recovering the Borrowed Funds

Discussion Case: The Case of the Missing Sailboat

Why Do Borrowing Customers Fail to Repay the Loan?

Common Terms Used in the Collection Process

The Collection Process

1.       Contacting the Borrower

2.       Possible Recovery Options

3.       Realizing on the Security (Collateral)

4.       What Happens When There Is Insufficient Collateral?

Planning for Avoiding Collection Problems

The Advisor’s Corner

The Case of the Missing Sailboat — Case Solution

Practice Case

 

Glossary of Terms

Common Acronyms Used by Lending Institutions

About the Author

 

Instructor Resources   top

Multiple choice questions, a test bank and PowerPoint slides are available for instructors.

Visit the Instructor Resources website

Related Resources   top

About the Author   top

For the first 29 years of his working life, Steve was employed by a major Canadian chartered bank, and much of that time was spent assisting personal and commercial customers with their lending requirements. Most of the information found in the book stems from Steve's experience in the field of lending, which explains why there is an absence of citations in the book. During his time at the bank, Steve obtained his Certified Financial Planner designation, and he was recently awarded the Fellows of the Financial Planner Standards Council. Steve is currently Professor of Business at Humber College in Toronto, where he teaches financial planning, professional selling, and consumer credit.

In 2016, Steve was selected by his college as a 2016 John & Suanne Roueche Excellence Awards recipient. The award is given by the League for Innovation in the Community College, a consortium of nearly 500 community colleges and technical schools worldwide, in recognition for outstanding contributions to teaching, leadership, and learning.