Payday Loans and Bankruptcy: A payday loan, is meant to tide you over until payday. Repayment is usually required within two weeks or on the next payday.
Payday Loans and Bankruptcy – Advantages of Payday Loans:
- Payday loans can be used to cover a cash shortfall until your next pay;
- Borrowers with poor credit who cannot obtain alternative financing are often eligible for payday loans;
- Payday loans are regulated provincially; with strict rules in place regarding interest rates, fees that can be charged, the number of loans allowed with one loan company and collection practices.
Each province and territory has its own rules and regulations.
Payday Loans and Bankruptcy – For example in BC the following rules and regulations are in place:
- Regulated by the Business Practices and Consumer Protection Act, Payday Loans Regulation;
- Prohibited from collecting payment from the borrower’s employer;
- Cannot loan more than 50 per cent of the borrower’s net pay or other net income;
- Can charge up to 23% interest.
Payday loans are very expensive.
If you borrow $300 for two weeks, and repay the loan in full and on time, you will pay as much as $63 in interest, which is the interest rate in Ontario. That works out to an annual interest rate of 546%.
Payday Loans and Bankruptcy – It can get even worse:
- If you can’t afford to pay the $363 two weeks later, you could be charged an additional $20 for a dishonoured cheque or pre-authorized payment and you could be charged a penalty. Your $300 loan is now costing you $83 in fees and interest, before you can even use any of your pay cheque.
- If you don’t pay your loan, the lender can sell your loan to a collection agency which can seriously hurt your credit rating.
- Collection agencies may sue you, garnishee your wages or seize your property.
Payday Loans and Bankruptcy – The Payday Loan Tread Mill:
Often when the pay day loan comes due, the borrow ends up paying a fee and rolling over the loan into another two week period, paying another fee and interest charge in hopes they will be in a better position to repay the loan next payday.
The payday loan cycle is difficult to stop and many borrowers use multiple payday loan companies and have multiple loans outstanding at any one time. The added stress of not knowing how to pay the loan off can cause borrowers to give up and stop trying to pay.
More and more trustees are seeing people coming to them with significant payday loan debts.
If you have any questions about this or any other matters there are three ways for you to get answers:
- Find a Trustee in your area, where you can make an appointment to see a trustee for a FREE confidential, no obligation consultation or request a Confidential Callback;
- Telephone Toll Free 1-877-879-4770 (24/7) to book a FREE Consultation;
- Use our confidential, anonymous “Ask a Trustee” feature to ask your questions. You will receive your answer within one business day.