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Introduction
We’ve been sounding the alarm bells about payday loans long and loud, but it seems that many Canadians are still unaware of their dangers. According to the Financial Consumer Agency of Canada (FCAC), many loan users are unaware of the high costs of these loans compared to their alternatives. This includes all such loans around me and you. This just goes to confirm what we already knew – there’s a great need to continue to raise consumer awareness about the costs of, and alternatives to, payday loans.
What the FCAC survey shows
The FCAC recently conducted a survey on payday loans and the results were quite insightful and at times quite surprising:
- They are an expensive way for consumers to borrow money. The annual percentage rate (APR) is typically 546%.
- Fewer than 43% of respondents understood that this kind of loan is more expensive than available alternatives. This suggests that many do not have enough knowledge to consistently make the borrowing decisions that best serve their financial well-being.
- The use of these loans has more than doubled in Canada recently to 4% of Canadian households.
- 45% of respondents reported typically using such loans for unexpected, necessary expenses.
- 41% used them for expected, necessary expenses.
- Users are primarily those with low-to-moderate incomes (more than half lived in households with annual incomes under $55,000).
- 20% of respondents who used this kind of loans reported household incomes exceeding $80,000.
- 7% of respondents who used them reported household incomes over $120,000.
- Many of the users surveyed indicated that they rarely sought financial advice even when they felt it was necessary.
Why not go to a bank or credit union?
Why didn’t respondents access credit from a bank or credit union?
- 90% said payday lending was the fastest or most convenient option.
- 74% said payday lending was the best option available to them.
- 55% said payday lending offered the best customer service.
- 27% said a bank or credit union would not lend them money.
- 15% said they did not have time to get a loan from a bank or credit union.
- 13% said they did not want to get money from a bank or credit union.
Can payday loans lead to bankruptcy?
Payday loans are a huge problem. In fact, the Canadian Payday Loan Association reports that nearly 2 million Canadians use payday loans each year. And many borrowers often find it very difficult to repay the full loan amount with the interest and fees. Now they’re trapped. They take out another payday loan to pay off the first payday loan and then take out another and another. It’s not difficult to imagine payday loans causing bankruptcy.
Are you caught in a payday loan trap?
If you’re caught in the payday loan trap, borrowing more money is not the answer – professional help is. Seek the advice of a professional trustee. Contact Ira Smith Trustee & Receiver Inc. today. You need answers, options and realistic plan for recovery and you need help now.
We’ll evaluate your situation and help you to arrive at the best possible solution for your problems, whether that solution is a bankruptcy alternative like credit counselling, debt consolidation or a consumer proposal or bankruptcy. Starting Over, Starting Now we can help you become debt-free.
