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Payday Loans Ontario

How to Free Yourself from the Dangerous, Predatory Payday Loans Ontario Trap

Taking out a payday loan is the perfect example of financially taking one step forward, and two steps back. If advertised for what they really are, payday loan ads would sound something like this:

“Trap yourself in the cycle of debt! Borrow $250 for 2 weeks at 469% interest. Then pay back quadruple the amount you borrowed in the first place!”

Doesn’t sound so tempting when you see payday loans for what they really are, does it? It would make you question if you really needed that toxic payday loan in the first place.

What is a Payday Loan?

A payday loan is the most expensive form of consumer loan in Ontario. It is a high interest, short term loan of $1500 or less, with a term of 62 days or less.

For many, these tempting, instant payday loans have become a lifestyle. You get cash immediately, the companies are not picky about poor credit, and you don’t have to repay it until you get your next paycheque.

However, the problem with these cash payday loans is that they come at a high cost, and paying them back can be near impossible. It becomes difficult to take money from your paycheque and pay back your loan in full, without having to take out another loan.

The next loan will need to be larger to accommodate for the added interest and fees from the first loan. The cycle of borrowing continues and consumers get trapped in a downward spiral of debt. One step forward, two steps back.

Cash Advance Payday Loans Are a Debt Trap by Design

Normally when you borrow money, say from a credit card or a personal loan, you are given the Annual Percentage Rate (APR). When borrowing this way, you know that your credit card charges a fixed annual interest rate of 19%, or that your car loan will be charged at 10% interest per year. But payday loans are advertised a little differently.

Instead of telling you the interest rate first, they tell you the dollar amount of borrowing with a payday loan. For example, you may see advertisements saying, “Borrow $300 for 2 weeks for only $54!” But unfortunately, the offer isn’t as good as it sounds. What you may not realize is that this is the equivalent of an annualized interest rate of 469%.

Here’s how to figure that out:

Payday Loans Online Calculator

 “Borrow $300 for 2 weeks for only $54!”

To figure out a payday loan’s annual percentage rate, take the cost of borrowing, $54, and divide it by the amount you are borrowing, $300. This gives you the interest rate for the period of the loan.

$54 divided by $300 = 0.18, or 18% interest for a two week period

Now we have to convert that into a yearly, or annual rate to be able to accurately compare it to another method of borrowing. To do this, we need to figure out exactly how many 2 week periods there are in a year. We take the number of days in a year, 365, and divide it by a 2 week period, or 14 days.

365 divided by 14 = 26.0714 two-week periods in a year

 We then multiply this by the interest rate to see what the annual percentage rate actually is.

26.0714  x   18% interest   =   469.29% annual interest rate

Payday Loans, Credit Cards – What’s the difference?

Let’s take a look at cost difference between payday loans and credit cards:

Amount BorrowedAnnual Interest RateDollar Interest Amount/Year
Credit Card$30018%$54
Payday Loan$300469%$1407


If you borrowed $300 from your credit card, you would be charged about 18% interest annually, or $54. If you borrowed that same $300 from a payday loan company, you would be charged 469% interest annually, or $1407. More than four and a half times the amount you borrowed in the first place! This is much, much higher than even the most expensive credit card in Canada.

The payday loan companies argue that these payday loans are meant to be for the short term, so you’re not supposed to go anywhere near the annualized interest rate. Unless, of course, you do, as most other payday loan borrowers do. Because if you can’t pay off your payday loan on payday, you may need to borrow another one.

For this reason, Consumer Protection Ontario has created an informative comparison chart that outlines the full cost of borrowing from just one, and multiple payday loans at once. It also shows the cost differences between payday loans and credit cards for just a 2 week period.

Payday Loan Alternatives

As you can see, one of the worst financial decisions you can make is to take out a payday loan. In fact, the only thing worse than a payday loan is two payday loans. They are a very expensive debt mistake. If you are considering taking out a payday loan, consider these alternatives instead:

  • Overdraft protection – the cost of borrowing is similar to a credit card, and much cheaper than a payday loan.
  • Credit card cash advance – the APR on a cash advance is less expensive than a payday loan, even though the interest is charged immediately on the amount you borrowed.
  • Line of credit or small bank loan – Ask your financial institution if they are able to extend a small sum of money to you to prevent borrowing from a payday loan.
  • Borrow from family or friends – Although you may feel embarrassed, almost any loan is better than getting a payday loan. You can create a repayment plan for the amount you borrow.

Each of the options above offer a much cheaper borrowing option that won’t get you caught in the cycle of losing $20 to $300 or more from every paycheque to payday lenders.

How to Get Out of the Payday Loan Trap

If you already have payday loans and just can’t see a way out, it may be time for some payday loan help.

At Adamson & Associates Inc., we can help you look at your financial situation and see if there are options to get you out from under all that debt. This way, you won’t need to rely on payday loans ever again. Some options we will review include:

  • Consumer Proposal – Consolidates and settles ALL of your unsecured debts, including your payday loans. You pay back less than you owe and make only one monthly payment until your proposal term (usually 1-5 years) is completed.
  • Debt Management Plan (DMP) through Credit Counselling – Payday loan lenders rarely participate in a DMP through credit counselling.
  • Bankruptcy – If you cannot afford a Consumer Proposal, you may want to consider filing bankruptcy. Payday loans are discharged by filing bankruptcy.

The real lasting solution is for consumers to understand the high rates they are paying when borrowing from payday loans, and to understand their alternatives to stay out of the predatory payday loan trap. For a free review of your situation and your options, please call us at 519-310-5646.

John Adamson, CPA, CMA

John is a Licensed Insolvency Trustee (1994), a Chartered Insolvency and Restructuring Professional (CIRP – 1994), and a Chartered Professional Accountant with a Certified Management Accounting designation (CPA, CMA – 1992). His experience includes more than 25 years of helping individuals, small businesses, their owners and even lenders, find solutions to their debt problems.

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