As Canada's population ages, the country is facing a looming financial crisis that doesn't garner…
If you’re strapped for cash, you might believe that access to fast money with no hassle is a good option. Many people consider payday loans. What are Payday Loans?
Payday loans are the most expensive form of consumer loan in Ontario.
So you’ve got to ask yourself…
Are they your only option?
Here’s the lowdown on what payday loans are, why they are far from desirable, and your best alternative to relying on them.
What are payday loans?
Payday loans are short-term (typically two-week) small-dollar loans (up to $1,500) characterized by high fees.
Many Canadians look to payday loans when they’re temporarily out of money to get them through to their next paycheque.
How do payday loans work?
You provide the payday lender with proof of regular income, a bank account, and a permanent address. (There’s no need for a credit check.)
Then, you write a cheque for the amount you are borrowing – including the loan fees.
You leave the cheque with the lender, and they cash it once you’re ready to repay.
In return, the lender gives you cash or direct deposits the amount of the loan into your bank account.
What are the fees associated with payday loans?
For every $100 payday loan you take out in Ontario, you will pay a maximum fee of $15 to the payday lender.
So say you want to borrow $300. You’ll be paying a $45 fee to the payday lender for that amount. This equates to a whopping annual percentage rate (APR) of 391%.
Now compare this to a credit card that has a 23% APR, for which the fee would be only $6.15.
What happens if you can’t pay back the payday loan?
When the loan comes due, you must pay it off in full. There’s no option to repay in affordable installments.
And if you can’t repay it, the company can directly deposit the cheque you left them.
If there’s not enough money in your account to cover the loan, you may rack up additional fees, such as a charge from the payday lender, interest on the loan, and an NSF fee for the bounced cheque by your financial institution.
In some provinces, debtors will rollover their payday loan if they cannot pay it on the agreed due date. This leads to exponentially increased fees and interest on the original loan.
And where rollovers are legal, borrowers tend to be reliant on them. In the U.S., as many as 80% of payday loans are either rolled over to another payday loan or followed by a new loan within 14 days.
In Ontario however, rollover loans are not allowed. You cannot get another payday loan from the same lender before paying off your first loan.
To get around this, debtors end up going to other payday lenders. As a result, they end up with several payday loans at different lenders, plunging them further into debt.
Why you don’t want to rely on payday loans…
Some borrowers use payday loans for ongoing, necessary expenses, like rent, food, and utilities. When they do this, they risk becoming dependent on them to live.
In fact, many borrowers return to payday loans regularly. One study reported that 29% of Canadians took out one payday loan in the previous three years. Almost as many (23%) taking out six or more loans, and 37% taking out two to five payday loans.
The problem is, with payday loans, you pay interest rates that are substantially higher than regular loans or lines of credit. Again, compare a credit card with a 23% APR to an Ontario payday loan APR of 391.07%.
This – along with the additional fees incurred if you default – simply increases your debt exponentially.
It can be difficult to put an end to this vicious debt cycle.
Last but not least, payday loans do nothing to help you resolve the underlying issue of your money problems.
What is your best alternative to payday loans in Ontario?
If you’re considering payday loans – or are already dependent on them – you should seek professional assistance immediately.
Your first step is to reach out to a Licensed Insolvency Trustee.
These federally-regulated and licensed professionals are the only ones authorized by the Canadian government to assist debtors with filing for insolvency.
Not only that, but Licensed Insolvency Trustees offer the full range of debt relief services, from helping you create a workable budget to filing for bankruptcy.
Licensed Insolvency Trustees are arguably the best financial advisors in the nation, having helped thousands achieve the debt relief they seek.
And if nothing else, know this:
You do have options.
And the sooner you get help, the more debt relief solutions you may have available to you.
Contact a Licensed Insolvency Trustee Today
Schedule your free initial consultation today. We’ll review your financial situation and advise you on all your available debt relief options. We’ll even provide you with our expert opinion on the best choice for you and your family. Let us help you on the path toward finally being free of debt. We look forward to hearing from you