Four Pitfalls of PayDay Loans

By November 14, 2018Blog

Many people live paycheque to paycheque, with very little left over in the slush fund to cover unexpected expenses.  In fact, at one time or another, most people have found themselves a little short on cash before pay day rolls around.  It can be tempting to apply for a payday loan as a quick fix to make ends meet – but this is never the best solution.

Here are 4 reasons why:

  1. High interest rates. Many of these payday loan companies advertise that it only costs you $15 or $20 per loan.  This can be misleading, since often this is based on a fixed fee per $100 loan, and it is contingent on your repayment within a two week window.  This means a loan of $500 could cost you an extra $100 at the end of your pay period – and that’s IF you pay on time.
  2. Increasing interest. Payday loan companies can increase their interest amount if you aren’t able to repay within the prescribed two week loan schedule.  If you aren’t in a position to fulfill your obligations under the loan right away, those interest rates can skyrocket, making them even more difficult to pay off.
  3. Increased financial strain. If you are considering a payday loan, chances are you are already pushing your financial envelope.  Adding the stress and pressure of a high interest loan can only add to your problems and make it harder for you to get on the right side of your budget.
  4. Multiple payday loans. Many companies will issue a payday loan with nothing but a recent pay stub. Individuals with an existing payday loan often become sucked into a vicious cycle of borrowing from several different companies in order to make ends meet.  This can cause a disastrous debt situation in a very short amount of time.  What started out as one high interest loan for a couple of hundred dollars can quickly turn into several thousand dollars in debt.

What is the alternative to payday loans?

If you are in financial distress and are unable to pay your bills and satisfy your debts, it’s important to evaluate your situation and take concrete steps to improve your fiscal well-being for a longer-term solution.  It might not help you make your car payment tomorrow, but it will help you to avoid these kinds of stressors in the future.

Meeting with a Licensed Insolvency Trustee is an important part of the debt solution process.  Get a professional assessment and learn what options are best for you to achieve long term financial health.  Whether your circumstances call for debt counselling, consumer proposal or filing for bankruptcy, our friendly and experienced team has seen it all and can help get you back on your feet.