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Living in Halifax can be just as expensive as any other Canadian city. While your income might support your current financial habits, sometimes your debts can leave you struggling with your daily expenses in Halifax. If that time ever comes (hopefully it doesn’t), there is one tempting, but risky, solution that you may be considering, the payday loan.
The Dangers of the Payday Loan Cycle
Payday loans are readily available to Halifax borrowers either online or through physical store locations. Essentially, these loans are meant to be short-term solutions. Borrowers in Halifax can easily be approved for a small amount of money (usually $1,500 or less), which they must repay 14-days after approval. No credit check will be involved. All a borrower needs is proof of their Nova Scotia residency, their active chequing account, and their employment. If all goes well, they’ll have access to fast cash within the same day.
Read this to discover the difference between personal, private, and payday loans.
However, as appealing as that may sound, there are many dangers involved with the payday loan process, namely how expensive they are. Payday loan lenders in Nova Scotia are permitted to charge up to $22 for every $100 borrowed. At 22% interest, those rates are some of the highest in Canada (next to P.E.I. at 25%). This, coupled with all the other fees involved, make any payday loan extremely expensive when compared to other types of financial products.
Check out this infographic that breaks down the payday loan cycle.
How the Payday Loan Cycle Starts
The danger begins when the borrower cannot afford to pay back their payday loan by the allotted due date, as their paycheck might already be going toward other expenses. Once the due date has passed without payment, the borrower will be subject to a hefty penalty fee (up to $40 in Nova Scotia). Even if they manage to pay back their full loan afterward, the borrower may have no money left to deal with their other financial necessities and could start relying on these pricey loans just to get by.
Is a Payday Loans Ever the Right Choice?
In reality, there are very few scenarios where a payday loan is the right choice for Halifax borrowers. However, it might be a viable last resort when:
- Banks and other lenders in Halifax won’t approve your applications, due to bad credit or low financial strength
- You can’t get a cosigner or have no collateral to secure another loan type with
- You can’t access any type of credit card
- You have an extremely important financial emergency that cannot wait
- You’re trying to avoid bankruptcy
When a Payday Loan Is the Wrong Choice
For the most part, payday loans in Halifax are seldom the right choice. In fact, they can be extremely detrimental to your finances when:
- You can secure another type of financing (personal loan, bad credit loan, etc.)
- You do have the option of using your credit cards
- You can afford to wait a few days until another solution presents itself
- You can’t afford such high-interest rates and additional fees
- The money involved would not be going toward something extremely important
- Your bills and other expenses would already drain your paycheck
- You have an unsteady income (freelance, part-time, contract work, etc.)
Trying to avoid payday loans? Consider a guarantor loan instead.
Payday Loan Rules and Predatory Lending Signs
While payday loan rates in Halifax are extremely high, there are still rules that lenders must follow in order to operate within legal boundaries. Be warned, if your particular lender in Halifax (or one you’ve researched) is not abiding by such rules, they may be a predatory organization or even worse, scammers trying to take advantage of you. Here are a few warning signs that you should look out for:
Payday loan lenders in Halifax:
- Are not permitted to charge you more than $22 per $100 borrowed
- Must display the costs/rules of their loans through clear advertisements
- Must display those same costs/rules within their loan contracts
- Are not permitted to offer you a “rollover” loan (grant you a second loan before your first outstanding balance is paid in full)
- Must allow you a “cooling off” period of 1 business day, wherein you may cancel your loan without penalty.
This is why it’s extremely important to do a lot of research before you decide that a payday loan is your only option. Any “lender” that breaks these rules likely has very bad intentions. Do not give them any of your personal or financial information, walk away, and report them to the Halifax authorities.
Payday Loans vs. Installment Loans
Breaking the Cycle and Asking For Help
The payday loan cycle can be seriously harmful to your finances and can last for years if you don’t manage to break it quickly. That being said, you can get there, as long as you’re willing to ask for help. Try some of these solutions:
Borrowing From Friends or Family
The simplest solution of all is to ask your loved ones for a bit of financial aid. However, you should only do this if you’re certain you can pay them back.
Secured Credit Card
Meant for consumers in Halifax who don’t qualify for regular credit cards, you can apply for a secured credit card by offering a security deposit equal to your desired credit limit. Once you pay back your full balance and your card expires, your deposit will be returned. The goal is to use the secured card to fix your bad credit/finances, allowing you to apply for a regular card later on.
Bad Credit Loan
If you have a credit score of 560 or lower, you technically have bad credit and may find it hard to get approved for traditional loans through prime lenders in Halifax, such as banks. However, alternative, private, and bad credit lending institutions in Halifax may still approve you for a personal, short-term, or installment loan. While bad credit loans generally have higher interest rates (as the lender is taking more of a risk), they are still going to be a safer bet than any payday loan.
Vehicle Title Loan
If your vehicle has some value, you can offer its title as collateral to secure a loan, which you can use to deal with your other debts. Be careful, if you don’t pay your vehicle title loan back properly, you’ll risk losing your vehicle as payment to the lender.
Home Equity Loan or Line of Credit
If you’ve built up some equity in your home, you can also leverage it to take out a loan or a line of credit. Again, be cautious. Failing to make your payments could result in even worse debt, possibly even your home being foreclosed and sold at auction.
Want to know how to build home equity in Canada? Find out here.
Debt Consolidation Loan
Acquired through both prime and subprime lenders in Halifax, debt consolidation loans can help you pay off several outstanding debts at once, leaving you with a single monthly payment and interest rate to deal with. Be warned, some lenders have strict qualification standards for eligible clients, including decent credit, collateral, and a good income. Your total debts must also not exceed 40% of your yearly income. Certain types of secured debt, such as mortgage payments, may not qualify for these loans. However, most unsecured consumer debt, payday loans included, will qualify.
Having trouble understanding secured and unsecured debt? Read this.
Debt Consolidation Program
Similar to the loans above, debt consolidation programs are used to eliminate multiple debts at once. Only here, you would be working with a certified credit counsellor in Halifax, who would contact your creditors for you. You would then make payments through your counsellor until your full debt is repaid. Similar qualification standards may apply, meaning you’ll have to prove that you have the financial ability to make payments on schedule. Again, only unsecured consumer debt will be eligible.
Look here to see some of the benefits of a debt consolidation program.
Consumer Proposal
This legal procedure must be administered by a licensed insolvency trustee and will free you from the majority of your debts once approved. A consumer proposal is a binding contract that’s struck between you and your lenders, which allows you to pay them back through timed installments. With this option, will not have to surrender any assets (house, car, etc.). On the other hand, you must have $1,000 – $250,000 of unsecured debt, be willing to let your credit rating drop to an R7 and have a record of the proposal stay on your credit report for 3 years following its completion.
Bankruptcy
The most drastic debt solution of all, filing for personal bankruptcy also involves hiring an insolvency trustee to draw up a legally binding contract, wherein the majority of your debts should be eliminated and your lender’s collection efforts should cease. Like a payday loan, a bankruptcy should only be considered when you have no other choice because there will be a lasting negative impact on your finances.
Getting Back On Track With Loans Canada
If you’ve been having trouble breaking the payday loan cycle or you’re trying to avoid it altogether, rest assured that Loans Canada has your back and can offer you the best solutions for your financial situation. Whether you’re living in Halifax or anywhere else in Canada, we’re here to help! Contact us today!
