Sometimes emergencies come up; your car breaks down, the roof or other part of your house needs to be repaired, or there is a medical emergency. The funds to take care of such problems may not always be at hand. In such situations, many people opt to take out payday loans.
How payday loans work in Canada
Payday loans are short-term loans that are taken out to get through a rough spot. They are so called because typically they are paid back on the next pay day. While they can be helpful, there are disadvantages to them. The loan amount is often modest (a few hundred dollars), and they are payable in periods of two weeks to one month. You will write a postdated refund check for the amount you are borrowing plus a loan fee. You will leave the postdated check with the lender and they will cash it on the day indicated on it, which will be within a few weeks to a month. If for one reason or another, you are unable to repay your loan, you can roll it over by asking for an extension. You will essentially be buying more time because the fees payable will keep accumulating.
The real cost of a payday loan
A payday loan is really one of the most expensive loan options. It actually attracts interest in the form of annual percentage rate (APR) in the range of several hundred percent. For instance, to borrow $100 for two weeks, you will have to pay back an additional $20 in interest. Using online calculators to see just how much a payday loan will actually cost you is helpful. With these very high fees, payday loans don’t really help you to solve your financial problems. Instead, they make things worse because you will most likely be unable to repay the loan plus fees on time, have no choice but to roll it over, and you will have entered a debt cycle that will be very difficult to break out of. You will either accumulate a huge amount of debt because of the rollover fees or have to borrow elsewhere to pay the loan which keeps you in a debt cycle. A bouncing check that you write to a payday loan lender may end up on your credit record and perhaps attract overdraft charges from your bank.
Get back on track
Payday loans are helpful when you only use them once or twice in your life but when they become a survival strategy, they leave you worse off than you were at the beginning. The long-term solution is to make a commitment to getting back on the right financial track.
Walk with Credit Counselling Services of Atlantic Canada (CCSAC)
If you find yourself in a situation where you are swimming in debt and can’t see a way out, we will show you the way. We believe that the first step to getting out of debt is education. CCSAC will equip you with the tools and skills you need for effective money management. At the end of your journey, you will be saving money, investing, and financial freedom will be within your reach.