By PAN Contributor Cody Wolfe
Payday Loans: what are they?
A payday loan is a short-term loan with high fees that make it an expensive way to borrow money. Also known as high-cost loans or high-cost credits, each province and territory has its own regulations for how they can be sold and used. In BC, you may borrow up to $1500, and you may have up to 62 days to pay it back. By law, any person or business who operates a payday loan business in BC or to BC residents must have a license. Lenders may do business in person, over the phone, or over the internet.
How do they differ from traditional loans?
Payday loans differ from traditional ones in a few aspects, namely; you may qualify without a credit check; you may pay a flat fee instead of interest when you pay on time; the lender may organize your loan payments around your payday schedule.
What do they cost?
Payday loans are very expensive compared to other ways of borrowing money. This is because you pay high fees. You must pay back some or all of the loan when you receive your next paycheque. If you don’t pay on time, you’ll face more fees and interest charges. This will increase your debt. You may have to pay a fee if your cheque or pre-authorized debit doesn’t go through, and your financial institution may charge you an insufficient funds fee if you don’t have enough money in your account. If you accrue an outstanding debt, the lender or a collection agency may sue you. These costs may make your loan harder to pay back, which may cause or increase financial difficulties and stress.
Ongoing Costs…
Say you took out a loan for $500 to tide you over until your next paycheque, and the charge per $100 borrowed was $15. Your next payment to the lender would amount to $575. If you were to do this on a regular basis, twice per month for six months, you would have borrowed $3000 and been charged $450 during that time. Over a 12 month period, $6000 borrowed and $900 charged. The fees associated with payday loans stack up quickly, and this is why we recommend considering other options first before settling on payday loans.
What other options can I consider before taking out a payday loan?
🟡Asking for more time to pay your bills
🟡Asking for a pay advance from your employer
🟡Getting a loan from family or friends
🟡Getting a loan or line of credit from your financial institution
🟡Getting a cash advance on a credit card
🟡Using overdraft protection on your chequing account
🟡Asking your lenders for payment deferrals, including a mortgage deferral and a payment holiday on your credit card
How can I check if a payday lender is licensed?
There are a few websites available that can help with this. To obtain a business number for a company registered in BC, use Orgbook BC or Canada’s business registries.
You may also use Consumer Protection BC to find licensed payday lenders.
Additional Info:
Sources:
https://www.consumerprotectionbc.ca/
https://www.canada.ca/en/financial-consumer-agency/services/loans/payday-loans.html
https://www.courthouselibrary.ca/
Poverty Advocacy Nanaimo 