An entire industry has been developing around the concept of pay day loans. The popularity of the payday loan is increasing because of the tightening credit policy of traditional banks, lower family incomes, and of course, rising cost of living. Payday loans offer seemingly immediate ways out of financial hardships, but there are many voices saying that the costs of such loans go beyond the interest rate and therefore should not be allowed in Canada.
Payday loans are often confused with bad credit loans simply because they are a suitable financing alternative for those who are faced with the stigma of bad credit. However, given the quick turnaround of financing, payday loans are often chosen by people with positive credit scores as well. The seduction of payday loans drives many traditional lenders and financial experts to campaign against allowing these types of loans in Canada. Here are three reasons why payday loans are harmful to Canadians and why they should be banned:
1. They are Incredibly Expensive – A payday loan doesn’t seem too expensive when you first take out the loan. However, if you start comparing it with a typical bank loan, you will notice that the costs can become ridiculous – even up to a 900% interest rate! Depending on the lender, the interest rate and fees of these bad credit loans are exceptionally high and this is the main worry of those who support banning payday loans from the Canadian financial environment.
2. They Create a Vicious Cycle – Another problem with payday loans is that it is incredibly easy to get approved. This seduces a lot of people into taking the loan without considering the actual costs. The high costs trigger a vicious cycle, which leads people to take out a new payday loan each month to get them to their next pay day. Most of the payday check will practically be gone once you’ve paid up your payday loan. Taking out a payday loan every now and then may not seem like such a big problem, but it can easily turn into one when you find that your paycheck may not be enough to repay your payday loan anymore.
3. They Get You Into More Debt – One problem with payday loans is that they need to be repaid quickly, which is often impossible for those who are already short on cash. These bad credit loans can entail huge costs if they are extended, and that takes the borrower into a debt trap. The more you defer payment, the more you have to pay, and the more you have to pay, the more you have to borrow, and you continue to get deeper into debt. Many people who are against allowing payday loans in Canada note that payday lenders seem to prey on the poorest members of society who will be unable to pay back their loans.
As you can see, payday loans definitely have their disadvantages. Quick and easy approval drive many people to get these quick-fix bad credit loans and end up with uncontrollable debts that they find impossible to repay. Before you take out a payday loan, consider other options like a car title loan, mortgage, or personal loan that has a much lower interest rate and more reasonable repayment terms. At Fast Access Finance, we make it quick and easy to qualify for one of these types of loans so you don’t have to turn to a payday loan.