The demand for payday loans has skyrocketed in the past year and it’s not surprising given the effect COVID-19 has had on the economy, and on our professional and personal lives. Here is an overview of the pros and cons of a payday loan, what your options are and how we can help.
What is a payday loan?
A payday loan is a short-term, high-interest loan, usually of $1,500 or less, offered by private companies, instead of banks or other financial institutions. In most cases, you have to pay back the loan within 62 days or so. However, the rules around these loans vary widely across Canada, with Quebec having among the toughest regulations, making it difficult for the big payday loan companies to operate there.
What’s good about them?
Payday loans are very easy to get. You don’t need security as you would with a bank – as long as you have an income, an address and a bank account, you should be able to find someplace to loan you money. You can also find payday companies everywhere – both online and in your neighbourhood. The loan companies are usually regulated by the province and require a license to operate, so they are not free to charge you any fee they want, with any terms they want. There is generally a cooling-off period of about 48 hours where you are able to cancel your loan. You may be considering this type of loan to buy food for your family or other necessities, and so any financial assistance is welcome.
What’s the downside?
Well, they are very expensive. Even with limits on the fees lenders can charge you, the actual cost of the loan can be exorbitant. For example, in most provinces, you can pay anywhere from $15 to $25 per $100 you borrow. If you count on multiple payday loans throughout the year, it adds up. Relying on payday loans can lead to a cycle of debt that is tough to break.
What if I can’t pay back a payday loan?
If you default on your loan, the lender may have several options open to them, such as charging you even more fees, garnishing your wages, selling your loan to a collection agency, and suing you, among other actions that depend on the regulations where you live. All of this can affect your credit score, your quality of life and can lead you into a downward spiral of debt. None of this is good.
OK, I’m convinced. But I need money. What are my other options?
The ease of a payday loan can be hard to resist, especially since you can secure one online or down the street. As discussed, the obstacles to getting one are pretty low – but the fees can be very high. There are options and we can help you decide which one is best for you. Here are just a few alternatives to a payday loan:
a. COVID-19 relief. Aside from the government programmes available for COVID-19 relief, there are other regulations that may help you out, like mandatory rent freezes, deferred credit card payments and lower interest rates. The details vary widely and can change quickly so seek advice as to what may be available to you where you live.
b. Bill management. Develop a plan and then ask companies for a payment extension or perhaps a payment plan where you can pay them back over time. And if you need a loan to pay off your credit card, there are options here, too. We can advise you.
c. Personal loan. Yes, of course, these are loans, too, but the interest rate will be lower and you can pay it back over a longer period of time.
d. Community. If your needs are more immediate, such as food or clothing, there are usually multiple local resources available to help out.
e. Government. Perhaps you qualify for support that you are not yet aware of. Federal, provincial and local governments offer many forms of assistance for those who need some support, like Ontario’s short-term financial help, for example.
f. Gig economy. If you are able and can do so safely, consider driving or delivering people or goods, making face masks, helping people in your community with chores, selling things you no longer need on marketplaces – and offering to help others sell their stuff, too.
g. Credit card advances. While a credit card cash advance is not generally recommended due to high fees, it can be an alternative to consider in some circumstances.
The Take-Away
Although payday loans are accessible and easy to get, you will pay for the convenience at a time when you’re looking to pay less and not more. You have options and we can advise you as to what is available where you live and what course of action is best for you and your family. Get in touch with us. LegalShield Canada is here for you.
Articles on the LegalShield.ca website are for informational purposes only and do not constitute legal advice or opinion in any manner. Laws mentioned in the articles vary from province to province. Any links to third-party sites in our articles are for general information purposes only and LegalShield is not affiliated with, nor does it endorse, the content of linked sites. It is always advisable to seek legal counsel – and LegalShield can help.
