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Loans Canada is pleased to announce it placed No. 131 on the 2022 Report on Business ranking of Canada’s Top Growing Companies.
While Canada’s wages are relatively high compared to many other places in the world, many consumers still struggle to keep up with their financial obligations. Whether it’s due to unpaid debts, loss of employment or the generally high cost of living in many urban areas, finding the right solution can be difficult.
Unfortunately, this exact situation is what often traps consumers into the payday loan cycle of debt. When it comes to dealing with an unexpected expense or even daily expenses, payday loans can seem like the right choice. But in reality, they often make financial issues worst.
Most payday loans are small, generally only $100 – $1,500 and you’ll come across many alternative lenders that provide them in almost every province and territory in the country. Typically, the loan is deposited as a single lump sum directly into your bank account within 24 hours of its approval.
Once you obtain the money, you will have a maximum of 14 calendar days to repay the lender. In most cases, the full loan sum, plus any interest and fees will be automatically debited from your account upon the designated due date.
Check out these alternatives to payday loans.
Sounds easy, doesn’t it? While payday loans can be very appealing, especially when you’re experiencing a financial crisis, they are responsible for massive amounts of consumer debt across North America. Let’s find out why.
As mentioned, the majority of people who apply for payday loans are doing so because they’re in the middle of a financial emergency and need access to a few hundred dollars of fast cash. Those emergencies can include but certainly aren’t limited to:
Another reason why consumers apply for payday loans is that they are very easy to get approved for, even with bad credit, compared to most other credit products in Canada. Unlike a bank loan or a credit card, the only documents you’ll need to acquire a payday loan are:
All things considered, payday loans appear beneficial on the surface. After all, a normal loan or credit card can be hard to qualify for and the application could take days to process, only to come back denied.
Enter the payday loan lender, where you can walk in off the street and, if all goes well, find the money in your bank account later that day (or by the next business day). Similar to most banks and credit unions these days, most payday lenders also have a website where you can easily apply.
Not to mention the fact that many less fortunate people are already dealing with bad credit, a low income, or a lot of debt, any of which can bar them from accessing regular credit products through a bank or other institution with higher approval standards. Actually, payday lenders snare many clients because they don’t check credit at all.
In the end, payday lenders offer a way to bypass these seemingly complicated and judgemental approval processes by granting borrowers cash loans with far fewer requirements. However, the real problems begin when the interest rate and service fees get tacked on to the final bill.
Essentially, most payday lenders use the desperate nature of a poor person’s situation as an excuse to charge them rates that are 30 or 40 times higher than what they’d be charged at a normal financial institution (300% – 500% APR in most cases). Depending on your province or territory, this could equal $15 – $25 per $100 you borrow. That rate, coupled with their exorbitant fees for loan origination and other “services” rendered.
Unfortunately, racking up hefty amounts of payday loan debt is all too easy, particularly for anyone that’s living paycheck-to-paycheck. Here’s how it can happen:
If the borrower continues missing payments, the lender may even sell their overdue account to a debt collection agency, which can lead to a whole new range of financial problems, such as harassment, wage garnishment, and eventually bankruptcy.
This is commonly known as the payday loan cycle and is a particular problem in the provinces and territories where “rollovers” are still permitted (when a lender allows you to take on an additional loan to cover the cost of your first one). The whole process is very hard for the government to regulate, so many payday lenders slip through the cracks.
Luckily, many areas in Canada now have rules that limit the damage caused by payday loans. For instance, all provinces now have maximum rates that payday lenders can charge and borrowers must be given a two-day period during which they can cancel their loan. In addition, rollovers, wage transfer forms, and unruly payment collection techniques are illegal in:
Now that you know how easy it is to fall into the payday loan cycle, let’s talk about some of the ways you can avoid it altogether. After all, payday loans should only be used as a last resort. Anyone who wants to prevent further financial problems will be better off looking into safer alternatives, such as:
Avoid getting stuck in the payday loan cycle of debt, Loans Canada can help match you with an alternative option that meets your unique financial needs.
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Loans Canada is pleased to announce it placed No. 131 on the 2022 Report on Business ranking of Canada’s Top Growing Companies.
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