Payday Loans Help in Canada

As the economy stutters once again, more Canadians will likely take out payday loans to cover a shortfall in funds. In one study, nearly half of Canadians said they took out regular payday loans for unexpected, necessary expenses, while 41 percent used these loans for necessary expenses such as utility bills.

As payday loans increase in popularity, many Canadians are unaware of the true financial consequences of this type of finance. Thirty-seven percent of all insolvencies in Ontario, for example, involve payday loans.

If you have payday loan debts, no matter how big, there is help out there. In this guide, you’ll find out how to deal with payday loans in Canada — and eliminate your debts for good.

What are payday loans?

A payday loan — or payday advance or cash advance — is a type of short-term loan that usually bridges the gap between one payday and the next. It typically covers a shortfall in funds or a financial emergency such as an unexpected bill.

A payday loan is usually a one-off payment deposited into a bank account. Payday loan companies will charge a rate of interest (and an administration fee) on the short-term loan, and additional fees for late repayment.

Why are payday loan “bad debts?”

Payday loans are intended as a short-term solution because they come with a higher rate of interest than other types of loans. Some payday loans have an annual interest rate of more than 400 percent. This means debtors increase their debt significantly if they don’t pay off a loan on time. In Canada, the Criminal Code makes it illegal for creditors to charge more than 60 percent interest every year, but there are no regulations in some provinces for payday loan lenders.

Payday loans are seen as “bad debts” because they are incredibly expensive compared to other lines of credit such as overdrafts and credit cards. Still, nearly 2 million Canadians take out payday loans every year.

What happens if you can’t repay payday loans?

Payday loans accrue lots of interest (and other fees) very quickly, making it difficult for some people to pay back these loans. Creditors can continue to add “late payment fees” and other charges that increase the total cost of the debt significantly. Late payment also impacts the debtor’s credit file, and this makes it difficult for them to apply for other financial products in the future, such as credit cards and mortgages.

Eventually, a creditor might take a debtor to court for late payment — a process that incurs even more fees. Also, a creditor can transfer the unpaid loan to a debt collection agency. This spiral of debt can have a significant impact on someone’s mental health. Right now, thousands of Canadians are struggling to repay payday loans.

What payday loans help is available?

There are various ways you can pay off payday loan debts:

  • Come to an arrangement with the payday loan creditor (or the debt collection agency that purchased the loan). You might be able to freeze future interest and penalties and arrange a monthly repayment plan based on your circumstances.
  • Combine your debts with a debt consolidation loan. You will still owe your debts, but you might find it easier to manage your finances this way.
  • Continue to pay off your loan when you can and hope your financial situation changes.

Sometimes, however, it’s just too late. Payday loan lenders and debt collection agencies might not want to “play ball” or help you deal with your debt. You will continue to receive letters and phone calls from creditors. You might have thousands of dollars left to pay.

There is an alternative. Some Canadians decide to file bankruptcy, especially if they have lots of other unsecured debts. Although this sounds like a scary proposition, bankruptcy provides some people with a fresh financial start — and a chance to eliminate payday loan debts for good.

If you need help with payday loan debt in Canada, you might also want to consider bankruptcy. You can do this by enlisting the services of a licensed insolvency trustee (also called a “bankruptcy trustee.”)

Want to get rid of payday loan debt and move on with your life? Since 1999, Bankruptcy Canada has helped 200,000 Canadians find financial freedom. Click here for a debt relief evaluation. It’s free and confidential, and there’s no obligation.