Are you in need of some cash, but do not have any savings to rely on? Have you ever thought about getting quick payday loans? You’re going to get paid soon, and you’ll pay it back, right? It’s better than increasing your credit card, balance right? Hold on. You may want to slow down before you grab that fast cash.
Some quick facts about payday loans:
- According to the Canadian Payday Lending Association (CPLA) 2 million Canadians a year take out payday loans against their paycheques
- Generally, payday loans are expected to be repaid before your next paycheque (the term is usually 14 days)
- You are usually allowed to borrow 30 to 50 per cent of your take-home pay
- Payday loans can be very expensive when you factor in extra fees and high interest rates
- Fees that payday loan companies can charge you are regulated by your province and vary
While payday loans may seem like a good solution when you are hit with sudden expenses;they should only be a lender of last resort.
“If there was ever a financial option that needs to be marked ‘buyer beware’, it is payday loans,” says Jeff Schwartz, executive director, Consolidated Credit Counseling Services of Canada.
“These companies may create a lot of convenience up front however those consumers who are already heavily burdened with debt or financially vulnerable often fall prey to these payday loan companies.”
Do the math
While on the surface, payday loans may seem like a pretty good deal, they most certainly are not. That is mostly because of the way in which the interest and fees are calculated.
For example, in Manitoba, lenders are allowed to charge $17/$100. In a pinch, that doesn’t seem that bad, right? However, if you annualized that amount (which is how your other credit products, like your credit card is calculated), it would be the equivalent of paying 442 percent annually.
Not so attractive now, is it? Here is a great resource from the Financial Consumer Agency of Canada that explains the serious downside of payday loans and compares borrowing costs of these loans vs. “traditional” credit products.
And if you don’t pay it back on time….
Remember, your loan term is generally only 14 days, which is a pretty tight turnaround. What happens if you don’t pay it back in full on time?
Well the interest keeps accruing, and extra charges begin to add on. The payday lender is allowed to charge you a penalty fee on top of the interest. Your financial institution may charge you NSF fees if the cheque you gave the payday lender bounces. Your amount owing on grows quickly (almost as quick as you were able to get your hands on this fast cash in the first place). Here is an infographic [please ck the link, it didn’t work for me] that explains non-payment scenarios and associated costs from the Financial Consumer Agency of Canada.
Even if it is only a few dollars a month, get in the habit of putting aside emergency savings. That way, when you’re hit with sudden expenses, you won’t have to take on additional debt.
Is your debt load backing you into a financial corner? Instead of taking on more debt to try to make ends meet, take steps to pay down your debt today to achieve financial freedom. To get started call one of our trained credit counsellors . or check out our free online debt analysis.