02/12/2019 0 Comments
Why Payday Loans Are NOT a Good Option
Back in 2016, the government of Alberta passed legislation to protect consumers from predatory lending practices. The new law targeted payday loan companies and lowered the maximum fee for these loans from $23 to $15, an amount that must include any and all service fees. Despite these changes, customers should remain wary of resorting to these loans. Here’s why.
What is a Payday Loan?
Simply put, a payday load is a short-term loan that’s meant as a bridge between paycheques. This seems fine in theory, but the large interest rates payday loan providers charge mean that borrowers are often forced to take out additional money just to cover the interest payments on previous loans. While provincial law now protects consumers from having to pay unreasonably high interest rates and fees, payday loans should still be avoided if possible.
Lower Fees Don’t Mean You Should Borrow More
The 2017 report on payday lending in Alberta shows that about 65% of payday loans were issued to customers who had previously borrowed money from the same company earlier in the year. While the new legislation protects borrowers from excessively high fees, repeat borrowing can still become a problem, especially since some lenders have found ways around the new regulations.
Lenders Are Diversifying
Many payday loan companies have started offering other financial products, such as installment loans. These are short-term loans designed to solve an immediate financial crisis and in this respect they’re similar to payday loans. However, they aren’t subject to the same regulations as payday loans. Lenders targeting low-income customers who are likely to have lower credit scores can charge high interest rates on these loans.
There Are Other Options
Some financial institutions are now offering alternatives to payday loans. These include small consolidation loans that allow borrowers to repay payday loans as well as small bridge loans meant to deal with a one-time financial crisis.
Short-Term Lending Can Help, But Not Always
While there are more and more sound short-term lending options available to Albertans, these loans should only be used as a way to deal with a temporary problem. If your debt is becoming overwhelming and you think you need help dealing with it, your best bet is to seek the assistance of a licensed counsellor.
Consult a Licensed Insolvency Trustee in Edmonton
If you need to get out of debt, your best bet is always to consult a licensed insolvency trustee. Whether you live in Edmonton, Leduc or elsewhere in the area, you can trust the team at Fox-Miles & Associates Inc. Call us today to schedule a free consultation.