When you look at the calendar and it is several days before payday, yet the cupboards are bare, the landlord is hassling you, or you need gas to get to work, it can be tempting to consider a payday loan. Unfortunately, companies that offer payday loans know you are desperate, and they have managed to come up with a solution that seems good on the surface but will likely just exacerbate the problem. While there are many laws that protect the public from usury, payday loans fall through the cracks, particularly here in Ontario.
Let’s say for the sake of argument that a payday lender was to charge what sounds like a reasonable fee of 5% of the amount borrowed. This makes a $100 advance cost you a $5 fee when your paycheck arrives in 5 days. That doesn’t sound like much, until you realize you just paid 1% per day, which would equate to 365% for a year. No credit card is ever going to come close to that. What is even worse is that the majority of payday loans are far higher than a 5% fee.
As of the date of this article, Ontario limits the fee of a payday loan to $15 per $100 loaned, which represents a 15% fee and an effective interest rate of 3,724%! While it is understandable that a payday loan company would want to have a higher rate to account for the inherent risks involved, many believe that the real cost of payday loans is a detriment to those who are only looking for a way to make ends meet. The problem is that when you essentially give away 15% of every paycheck, the money is going to run out even faster, leaving you no option but to seek out payday loans over and over again.
There is a solution that stops the never-ending roller coaster of payday loans. Give us a call at Morgan & Partners Inc. to discuss our personal financial planning services, including credit counseling, consumer proposal services, personal insolvency services, and personal debt consolidation. We do not take a cookie-cutter approach to getting you back on track for your financial goals, but rather come up with a personalized plan that makes far more sense in the long run than paying exorbitant payday loan fees. When you can actually use your entire paycheck, it will make a world of difference. Contact us today to learn more.