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Payday loans are a last resort that many Winnipeg borrowers turn to in order to resolve a pressing financial situation. Unfortunately, while payday loans can seem convenient, the circumstances where they are actually appropriate are few and far between. Wondering why payday loans are so frowned up? Keep reading to find out.
What’s the Appeal of a Payday Loan?
As we said, a payday loan is very rarely the right choice for anyone. In fact, Winnipeg borrowers generally only apply for payday loans because:
- They are very easy to qualify for since no credit check is required.
- The only standards for approval include an active chequing account, a Manitoba address, and a confirmation of steady employment.
- Borrowers will be granted small loans ($1,500 or under) within the same day that they apply.
- Typically, borrowers have 2 weeks to pay back their loan, which is a relatively short payment period compared to other types of loans.
Payday Loans Are Only The Right Choice When:
- You cannot get approved for any other type of credit product or debt solution through your bank or another lender in Winnipeg.
- You have a serious financial emergency to deal with immediately.
- You have no problem paying back your full outstanding balance within 2 weeks.
Payday Loans Are Often The Wrong Choice Because:
- High-interest rates apply (as much as 17% in Manitoba).
- Scams, identity theft, and fraud are higher probabilities than with other products.
- Other expenses can get in the way of you making your final payment on time.
- You may end up relying on payday loans to get by since you can’t get approved for other kinds of credit products or debt solutions.
- Your other expenses, coupled with your payday loan, plus any late penalties you may have incurred, can drain your whole paycheck and leave you penniless.
Take a look at this infographic to know the true cost of borrowing.
What Are the Hazards of the Payday Loan Cycle?
When approval from other lending sources in Winnipeg is not possible, it’s easy to rely on payday loans for every cost, whether it’s an emergency or not. That’s where the payday loan cycle begins and sometimes never ends. Besides the high-interest rates and administrative fees (which are also numerous), there are two major ways that the cycle can quickly get out of hand.
Rollovers and Extensions
While the province’s maximum interest rate ($17 per $100 borrowed) is actually not as high as other parts of Canada, two services that payday lenders are allowed to offer in any town or city in Manitoba (Winnipeg included) are “rollovers” and “loan extensions”.
A rollover is when a payday lender offers you a second loan before your first is paid in full. An extension, on the other hand, is an offer to extend your payday loan term beyond the general 2-week period. While both options are marketed as ways for you to pay off your first loan easier, they also come with hefty penalty fees. A loan that should have been small then becomes hugely problematic and more expensive by the day. Once again, this can cause you to take out one loan after the other just to scrape by. In fact, rollovers and extensions can lead to so much debt that they’ve been banned in several provinces.
Scams, Identity Theft, and Fraud
Another extremely hazardous fact about payday loans is that they may leave you vulnerable to predatory lending, which can include scams, identity theft, and fraud. While there are plenty of legal payday loan lenders all over Winnipeg, there are also many fake organizations established by scam artists who will try to charge you unreasonably high prices or steal your financial and personal information. Since payday loans are normally easy to get, borrowers in desperate financial situations willingly apply for what they think is fast cash, divulging their banking information in the process. Unfortunately, that’s exactly what predatory lenders and scammers are banking on.
Here are some red flags that you can look out for to avoid these predators:
- They charge more than $17 per $100 borrowed
- They ask for an advanced “loan insurance” before your funds are granted
- They refuse to detail every cost associated (payment, interest, fees, etc.)
- They don’t have advertising or loan contracts that also detail these costs
- The “sales representative” is avoiding your questions
- They use aggressive or threatening language to get you to apply or pay
- They have no page in the Better Business Bureau database
- Their online presence is filled with fake customer reviews or none at all
- They want you to sign a contract that transfers your wages directly to them
Check out this infographic for even more information about the payday loan cycle.
How Can the Payday Loan Cycle Be Broken?
So, now you know how to spot an illegal payday loan lender in Winnipeg and Canada, in general. However, remember that even legal payday loans can cause terrible debt. If the payday loan cycle worries you, stay calm, because there are ways that you can break it or avoid it altogether, including but not limited to:
- Borrowing from friends or family (only if you can afford to pay them back)
- Personal, short-term, or installment loans (if you qualify)
- Credit cards (only if you can afford your payments)
- Finding a cosigner or offering collateral if you don’t qualify for such products.
- Vehicle title loans (if you own your vehicle completely)
- Home equity loans or home equity lines of credit (if you have at least 20% home equity)
- Guarantor loans (if you can find a cosigner with good credit and financial health)
Need to access your home equity? Here’s how.
How Can I Deal With My Payday Loan Debt?
If you’re already in serious debt caused by your payday loans and other expenses, you should take measures to alleviate the situation as quickly as possible. You can provide yourself with some debt relief by using one of the following options available in Winnipeg:
Done by yourself or with a debt settlement companyin Winnipeg, this involves a negotiation with your lenders to prove that you cannot pay your full outstanding debts. If accepted, your settlement should allow you to pay less than your full balance.
Click here to learn how to negotiate a debt settlement on your own.
Debt Consolidation Loan
This option involves applying for one large loan to pay off all your other debts at once. While debt consolidation loans can sometimes be hard to qualify for, you can make the process easier if your application is backed by a cosigner or security (the offer of assets as collateral). If approved, the main benefit is that you’ll only have to keep track of one month-to-month payment, instead of several.
Debt Consolidation Program
A debt consolidation program in Winnipeg is similar to a debt consolidation loan, however, you would instead need to seek out a credit counselling service to facilitate the process and negotiate with your lenders on your behalf. These programs are often cheaper and more convenient, as you don’t have to apply for a loan. Instead, you’ll make payments to a credit counsellor in Winnipeg, who will pass them along to your creditors.
To see some additional benefits of debt consolidation programs, check this out.
Besides bankruptcy, a consumer proposal is one of the most drastic debt solutions you can apply for in Winnipeg. In this case, you would need to hire a licensed insolvency trustee to oversee the proceeds and offer a proposal to your creditors that allows you to pay back your outstanding balance through equally divided payments or lump sums. If the proposal is accepted (be warned that your lenders may not agree to it), all collection efforts, wage garnishments, and other legal actions against you will stop immediately. However, these proposals can cause hefty damage to your credit score and remain in your credit report for 3 years following completion. During that time, it may be very hard for you to get approval for other credit products or reasonable interest rates to go with them. Only apply for a consumer proposal when your debt situation is too heavy to manage alone but has not yet reached the point where bankruptcy is needed.
Wondering if you can pay off your consumer proposal early? Find out here.
By far the most drastic and detrimental solution, declaring personal bankruptcy should only be considered when you’ve exhausted all other options available in Winnipeg. Here, you would also need to seek an insolvency trustee to help you through the process. If they can determine that you have no way of paying your debts otherwise, a court judgement will be passed that frees you from the majority of your debts (some secured debts, like mortgages, may not qualify). Again, any legal actions against you should cease.
Read this article to find out what debts can be included in a bankruptcy.
Trying to Avoid Payday Loans?
If you’re living in Winnipeg and your financial situation is a bit worse for wear, it’s probably better to avoid payday loans. Instead, try contacting Loans Canada. We offer solutions that can help you avoid or break the payday loan cycle.