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Online & EFT Loan Payments Beat Paper Cheques

Online & Electronic Fund Transfer Loan Payments Beat Paper Cheques

The individuals and companies who invest in real estate via the private mortgage market rely on their borrowers making timely payments for their businesses to succeed. In many cases, private loan borrowers still pay via paper cheque. However, there are a number of benefits for private loan providers to change over to collecting their payments via the Internet.

When times get tight, borrowers can view their lenders as people who are obsessed with money, caring a lot more about on-time payments than they do about the predicament of their borrowers. However, private lenders often draw their main income from the loans they give out, and if they don’t get those payments, then they’re stuck without money.

The loan agreements overtly spell out the date when payments are due and the payment method. Part of the private loan approval process involves checking the borrower history as the ability to make good on the payments. Because loan payments are so important to maintaining income for private lenders, it is time to move into the twenty-first century when it comes to collecting loan payments.

What’s wrong with cheques? 

It’s easy to forget to write a cheque – particularly if you already pay most of your bills online. Then, once you write it, it can be easy to forget to send it to the lender. On the flip side, private lenders can get busy and also forget and forget to cash cheques on agreed dates. Such instances will have a lender looking unprofessional and not trustworthy. Cheques don’t have the same level of security as online payment systems. So let’s look at a list of advantages for online payment of your private mortgage as opposed to post-dated cheques.

It’s easy to collect loan payments online

A private lender who deals in cheques has to take time out of their busy schedule to deposit each cheque. Most of the major banks have a way to deposit paper cheques using their app, but then you have to hold onto the cheques for a week or so just to make sure there are not any hassles. Even borrowers most likely prefer to pay online, because they pay their other bills online anyway.

Late payments are less likely

With an online loan collection tool, it is possible for borrowers to get reminders, via text message or email. Just because a borrower misses a payment deadline does not mean that he or she is a deadbeat – the deadline may have slipped his or her mind. These reminders often bring gratitude from borrowers, as they won’t face late fees thanks to the heads-up. The great thing with online payments is that a borrower can set up the payments to automatically transfer on a predetermined scheduled day of the month.

There are multiple electronic payment options

With most online payment systems, lenders can choose to accept an online cheque (similar to a paper cheque in theory but with less hassle), a credit or debit card, or even cash using a walk-in payment system. If you choose to accept payment systems such as PayPal, that makes things even more flexible.

Private Lenders receive updates in real-time

Most of the time, cheques are often available and funds are confirmed cleared in 2-3 business days. With an online system, you get the notification immediately. No more waiting to see if you or your Broker Underwriter needs to send a non-payment notification.

Other Automated Secure Options

Reverse Electronic Fund Transfer (EFT)

As a private lender that is looking to ensure the most streamline process; setting up a Reverse EFT (Electronic Fund Transfer) is the most advanced. It is essentially like a PAD (Pre-Authorized Debit) providing your business permission to pull funds from the borrower’s account; just like a bank. First and foremost, you would need to be set up as a corporation. Second, you’d need to contact the Commercial Banking Division with a major bank or credit union and advise them that you are in the business of lending money. Once you’re connected with the appropriate commercial banker; you’d apply to set your company up. Each financial institution will have their own set up fees, and transaction fees associated, but well worth it for the added convenience. 

Set up with an Account with a Trust Company

Alternatively, if you are funding a mortgage in your personal name or simply do not want to have your business set up a Reverse EFT; then this is the other way to go. A few of the companies that offer this service are Olympia Trust Company, Canadian Western Trust Company, and B2B Trust Company to name a few. At Amansad Direct Lending Group, we’ve had the most success with Olympia Trust primarily because you have a designated officer to helps administer your mortgage. All options also allow you to fund using non-registered, and registered funds.

Online & Automated payment systems provide improved security for both parties

Online loan collection moves the funds from borrower to lender without sharing any financial details. Paper cheques have the borrower’s routing number and account number printed on them. While the lender is unlikely to conduct any fraud, if that cheque gets lost in the mail, or stolen out of the mail, the borrower can find that a thief has written fake cheques out of his or her account.

If you are considering investing in the private mortgage market, or if you have been in the market for years but are still dealing with paper cheques, consider the advantages of moving to an online system. You’ll have fewer hassles, fewer delays and much greater peace of mind every time the first of the month rolls around.

Daniel K. Akowuah | Mortgage Professional / DLG Underwriter
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