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📅 Last Updated: November 5, 2021 ✏️ Written By Bryan Daly 🕵️ Fact-Checked by Caitlin Wood
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Payday loans have not yet been banned in Newfoundland & Labrador, but maybe they should. As convenient and appealing as they may sound, the reality is that payday loans can lead you down a risky financial path, due mainly to the debt cycles they often cause.
Why Avoid Payday Loans?
Typically, payday loans come in amounts of $1,500 or less and are accompanied by a payment date of 14-days (or a common paycheck term) following approval.
Newfoundland & Labrador consumers may find them tempting because:
- No credit check will be performed
- Only a chequing account, proof of residency and at least 3-months steady income/employment needs to be verified
- Same-day approval and funds deposit (from on-site store locations), which can be beneficial for emergency financial situations
However, the reasons you should avoid payday loans are:
- Newfoundland & Labrador is one of the only Canadian provinces that has not capped their maximum interest rate at 25% or $25 per $100 borrowed (it currently remains at 60% or $60 per $100 borrowed)
- The Newfoundland & Labrador provincial government has also yet to impose any of the same, stricter payday loan regulations as most other provinces
- Newfoundland & Labrador payday loans come with other high fees (administration, defaulting, cheque cashing, etc.)
- Newfoundland & Labrador is also one of the only provinces where “rolling over” your loan is still legal (getting an additional loan, even if your previous balance isn’t paid yet)
- These high rates, fees, and penalties, coupled with the roll-over option can cause an extreme cycle of debt under the wrong circumstances, one that can take months, even years to recover from
Check out this infographic to learn more about the payday loan cycle.
Why Are Payday Loans Considered “Predatory”?
Generally speaking, Newfoundland & Labrador borrowers apply for payday loans when they have a serious financial emergency, poor credit or a low income which stops them from qualifying at their bank, or they simply don’t know any better. Payday loan lenders then use their desperation for cash as a way to justify their unreasonably high fees.
Want to know how you can qualify for a personal loan instead? Read this.
Because the Newfoundland & Labrador government hasn’t imposed the same payday loan rules as the majority of Canada (although they supposedly will within the next year or two), it’s also become easier for scam artists to create fake online payday loan websites. While not all online payday loan sources are fake, scammers use the idea to take advantage of desperate borrowers, stealing their money, as well as their personal and banking information.
Here’s how you can avoid predatory lending and scamming in Newfoundland & Labrador:
- Look out for the “rollover” option. Avoid taking out more loans just to pay off your others. This is the easiest way to land yourself in debt.
- Beware of false or vague advertising. You should always be aware of exactly how much your loan will cost you in payments, fees, and interest by the end of your term. If your lender in Newfoundland & Labrador doesn’t answer your questions properly or specify exactly what they charge within their contracts or through some form of clear advertising, walk away.
- Watch the way the lender or salesperson behaves. While it’s common for any salesperson to sweet-talk you into buying their products, be very careful when it comes to payday loans. If it seems like they’re trying to coax you into giving them your information, they’re being too pushy, forceful or downright rude, it’s another sign that they’re trying to take advantage of you. Even if they want you to pay your loan, they have no right to threaten, bully or manipulate you.
To learn how you can identify a loan scam, watch this video.
Alternative Choices in Newfoundland & Labrador
Depending on how bad your current debt, credit, and finances look, there are still many other loan and credit products in Newfoundland & Labrador that will save you far more money and offer you more benefits than any payday loan ever will.
Some of these products include (but aren’t limited to):
- Credit Cards: While you should be aware of the fact that credit cards can also lead to unmanageable debt when you use them too much, they are a far less dangerous way of financing most common expenses.
- Installment Loans: These are loans of varying amounts and are meant to be paid off in scheduled “installments”, rather than all at once (common with a payday loan). Your approval will be based on your overall financial health. If you have poor credit, you may have to apply at a bad credit lender, instead of your bank. However, they will likely come with a much lower interest rate and a negotiable payment period.
- Vehicle Title Loans: Here, you must fully own a vehicle to be approved. You’ll then be granted a loan amount based on the vehicle’s current market value. Be careful here, because if you miss too many payments, your lender could confiscate and sell your vehicle as collateral.
- Home Equity: When you’re mortgaging or you own a home completely, you can leverage your equity (the amount you’ve paid toward the mortgage) as collateral for a loan. Again, be careful, because certain circumstances allow your lender to foreclose on your home and sell it if you default for too long.
- Debt Consolidation Loans: If approved, you’ll be given a loan that’s large enough to pay off most of your smaller debts, leaving you with a single payment schedule and lower interest rate. However, these loans aren’t always easy to qualify for, so ask your lender about their process before you apply.
- Debt Management Programs or Debt Settlements: If your current debt level is more severe, you can hire a credit counsellor in Newfoundland & Labrador to contact your lenders for you. Together, they may discuss a plan for you to pay back your debt through a more reasonable payment plan, possibly even reducing your bill in the process. Your lenders might not accept your program or settlement, however, so be prepared to consider the next options.
- Consumer Proposals: When your debt is so bad that your lenders won’t accept any of the payment methods above, you can try hiring a licensed insolvency trustee in Newfoundland & Labrador to discuss a legally binding contract with your lenders. If accepted, your contract could reduce your outstanding balance and offer you a more affordable payment plan. Just be aware of the fact that a consumer proposal may affect your credit for up to 3 years.
- Bankruptcies: As your last line of defense, declaring personal bankruptcy can save you from a lifetime of debt. If approved, your debts will be cleared and all debt collection efforts against you will cease. However, this is meant to be a last resort! Your credit will be damaged for up to 7 years and you’ll likely have to make surplus income payments toward the court during that time.
If you have any questions or concerns, you can seek out credit counselling in Newfoundland & Labrador.
Frequently Asked Questions
Can I qualify for a loan even if I’m unemployed?
Yes. But even if you’re unemployed, some kind of income is required to be able to make the payments. There are providers that consider income from alternative sources. Usually, such an income would be government support or a private pension. Depending on the payday lender, they may consider the Canadian Pension Plan (CPP), Employment Insurance (EI), disability assistance, or private pensions, as income when processing your loan application.
What is the maximum allowable interest rate for payday loans in Newfoundland and Labrador?
The province of Newfoundland and Labrador holds one of the highest payday loan rates in the country. Payday lenders in the province are permitted to charge a maximum of $21 per $100 lent. On the other hand, many other provinces allow only up to $15. Newfoundland and Labrador’s rate is the equivalent of an almost 550% annual interest rate assuming a two-week loan. The reason that payday lenders, in general, can charge such astronomically high-interest rates is because of the quick turnaround of the loan, which is expected to be repaid within your next 1 or 2 paychecks.
Do payday loans affect your credit score?
Payday lenders do not typically check credit reports nor do they report to the credit bureaus either. Their primary way of determining approval is by verifying your employment or another income source, identity, address, and bank account. Applying or being approved for a payday loan should not directly affect your credit. However, if you fail to repay your loan, your debt could be sold to a debt collection agency who will most likely report it to a credit bureau. And having something in collections can greatly worsen your credit rating.
How Can Loans Canada Help?
Since payday loan lending is still fairly unregulated in Newfoundland & Labrador, it may be best for you to avoid these loans altogether. Unless, of course, you have no other choice. However, if you would like to try a loan or credit product that works better for your financial health, Loans Canada can help you find it. Contact us today for healthier alternatives tomorrow!
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