Caught in the Pay Day Loan Cycle?
In times of desperation, people who don’t have savings or access to credit may turn to a payday loan company for short-term, emergency cash needs.
Here’s how it works. The payday lender agrees to lend you money equal to a percentage of your paycheck which must be repaid in full plus interest and fees on your next payday. There are no credit checks and all you need to qualify is a dependable source of income (yes, some lenders count pension and social assistance benefits). The payday lender typically requires confirmation of your income and a post dated or void cheque so they can debit your bank account when the loan comes due. The loan plus interest and fees will be due in full on your next pay period. If you cannot repay the loan in full then you will incur other penalties.
The problem with this type of borrowing is that it is very expensive and can often leave the borrower, who is already in a tight financial position, unable to repay the loan. So they end up re-borrowing or getting a “roll-over” loan by paying off the current loan and immediately getting another one from the payday lender. Some will even get several payday loans from several providers – using one loan to pay off another. When this happens interest and late fees accumulate quickly until the debts spiral out of control. This is what is known as the “payday loan cycle” and once in, it is nearly impossible to get out without some intervention.
Using payday loans is one of the most common warning signs of financial trouble. The only way to get out of this cycle is to pay what you owe in full and stop re-borrowing. This is often impossible so you will likely need the assistance of a licensed professional to help you break the payday loan cycle and find solutions to address your financial concerns. A trustee in bankruptcy can provide you with a no-cost assessment and explain how personal bankruptcy or a consumer proposal can help you break the payday loan cycle and regain control of your finances.
Powell Associates Ltd. is a Licensed Insolvency Trustee (LIT) focused on providing debt settlement, proposal and bankruptcy solutions for individuals and businesses. We offer free consultations to review your personal financial situation and practical debt resolution options. Contact us to discuss your situation over the phone or book an appointment to meet us face-to-face in Saint John, Moncton, Fredericton, Charlottetown or Dartmouth - it's your choice.