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The popularity of payday loans in Canada is an understandable problem when somewhere between 7 and 10 percent of the population has to use a payday loan to simply get by on a daily basis. Furthermore, about 1 in 10 Canadians who file for bankruptcy not only have payday loans, they usually owe more than a whole month’s salary and not simply one week’s, as commonly thought.
The situation usually goes like this: rent needs to be paid right away but you don’t have the money, you haven’t bought groceries yet this week and then your car breaks down or you need to put gas in it but of course your next paycheque won’t be coming for more than a week. Unfortunately, after all this, a payday loan seems like the perfect solution. You’ll be able to get the small amount of cash you need right away to deal with your rent, car, and food expenses, and then pay the loan back once you get your next paycheque. What no one tells you is that taking out one payday loan will inevitably force you to take out another one the next week and soon you’ll be in a payday loan cycle which can be very hard to get out of.
When you’re in the payday loan cycle it can seem like there is no end in sight but we want to help you break the cycle, get help and start building a healthy financial life.
10 questions you should ask before taking out a payday loan, click here.
If you’re stuck in the payday loan cycle and have decided you need to get out the first thing you need to do is eliminate your reliance on the loans as much as possible, if not completely. Here are a few steps you should take:
For individuals and families who need help making ends meet, there are other solutions to choose from. Personal loans can often be a good solution to alleviate temporary financial crises. Unlike a payday loan which often carries obscenely high-interest rates, personal loans have more affordable rates. Some payday loans have an APR of 500% or more. This means that in a year’s time, a $1,000 loan will accrue $6,000 in interest. Even though most payday loans have a term of two weeks rather than a full year, this is still a whopping additional $230 due on top of the balance of the loan.
A personal loan will have a substantially more reasonable interest rate. Additionally, most personal loans have longer terms, usually 1-3 years, meaning families have more time to pay for the full amount and won’t need to put themselves under financial strain to pay off the full balance in one large payment.
If you are desperate for money to pay your rent or something just as important find an alternative lender. A personal loan from a private lender repaid in instalments and spread out over a longer period of time is one of the best options.
If you have several payday loans as well as other debts, then consolidating them all together might be exactly what you need to break the payday loan cycle and become debt-free. If you consolidate your debts then you’ll only have to make one (possibly lower) monthly payment instead of making many different payments to many different companies.
Unfortunately, if you choose to enter into a debt management program to help pay off your debts, most if not all payday loan lenders will refuse to participate in it. So if you decide to consolidate your debt you are left with these two options:
It’s of the utmost importance that you know and fully understand your rights if you currently have or are considering taking out a payday loan.
The payday loan cycle can seem like it’s impossible to break, but it’s not. You need to start by cutting off your reliance on them and then seek help as soon as possible. It may take time and some hard work but you can and will break the cycle and become financially free again.
Although many families hope to go through life without needing financial support, sometimes seeking help is inevitable. For Canadians facing a first-time money crisis or those stuck in the payday loan cycle, a personal loan can be the solution. With longer terms and low-interest rates, personal loans can be paid off over time with a schedule rather than right away at inflated costs. Should you find yourself in rough economic waters with no chance of making it to the surface alone, think personal loan, not payday loan.
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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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