Payday Loans are a Necessary Financial Product
Along with ensuring that the financially vulnerable have a safety net, the Canadian Finance Organization testified that the payday loan industry provides substantial protections that prevent households from being exploited. The board recommends that instead of increasing regulations, governing bodies should educate consumers.
In the report, the Canadian Finance Organization advised regulatory agencies that they should work to distinguish licensed online payday loan lenders from those that operate illegally. By doing so, regulators will be taking a vital step toward protecting the financial well-being of payday loan borrowers and help them avoid bad credit payday loans. This step will also deter growth within deceitful channels that are unregulated.
Helping Millions of Cash-Strapped Canadians
Yahoo! Finance reports that in 2014, the licensed division of the Canadian payday loan industry issued approximately 4.5 million short-term loans to the country’s households. These loans totaled $2.2 billion. The board’s data also shows that an estimated 80 percent of payday loan borrowers turn to short-term loan lenders about twice a year.
Not only do payday loans help individual consumers, but the financial product also generates a significant economic footprint that goes toward the health of the national economy. The economic footprint that payday loans supplement is equal to 6,930 fulltime jobs for the country’s economy with salaries that total $273.3 million.
Tony Irwin, the president of the Canadian Consumer Finance Association, said, “The findings in the Conference Board of Canada report are a fair representation of the downside of overregulating licensed payday lenders, harming Canadians who need safe access to small-sum, short-term credit.”
When Everything Doesn’t Come Up Roses
A borrower’s poor credit history can cause credit line qualification problems with traditional lending institutions. When consumers face this problem, they often take money out through the alternative lending market, and because these lenders run their businesses outside of regulated institutions, borrowers can wind up paying high interest rates. These rates are often as high as 28 to 29 percent.
Debt Care Canada shared the story of a borrower who ended up paying $25,000 for a $10,000 loan. The story highlights how the borrowing options for those with bad credit are limited. Because of this, it’s not uncommon for people to pay excessive amounts for bad credit payday loans.
Lenders price interest rates according to risk. This means that rates escalate quickly for people with no or poor credit. While payday loans give people the money that they need for urgent situations, the borrowing option often results in crushing debt. When consumers start having credit problems, a few signs are typically present.
What are the Signs that Someone is Having Credit Problems?
If a consumer is only making the minimum monthly payments on his or her revolving debt, then he or she could be experiencing credit problems. Those who frequently seek payday loans may also be having trouble with credit. Owing more debt that one can pay in full within four years is another sign of credit difficulties.
Canada Has Consumer Protections in Place
When Canadian borrowers find themselves in unmanageable debt, they can file a consumer proposal. This is the country’s bankruptcy option, and if an indebted individual files for it, he or she will pay a portion of what is owed in exchange for balance forgiveness. A consumer proposal has the added benefit of putting a stop to enforcement action that is already in the works. It also blocks the accrual of high interest.
While the country accepts that predatory lending is likely here to stay, Canada has regulations in place to keep it from getting out of hand. However, the government doesn’t consider an interest rate illegal until a lender is charging 60 percent or more. The Canadian government also permits payday loan lenders to charge as high as 21 percent in interest for a two-week period.
How is Payday Lending Organized in Canada?
Payday lending stores in Canada are small businesses. Estimates show that the annual loan volume for this type of lender ranges from $300,000 to $7,000,000 in Canadian dollars. Only a few stores lend more than $3 million while the average is less than $1 million.
The fees for these loans range from 15 percent to 25 percent, and the industry’s gross annual profits vary from $45,000 to $1.4 million. In this category, the average gross is around $200,000 a year.
Payday loan lenders experience loan losses at a much higher rate than banks do. This is one of the major reasons why the fees and interest rates for these loans are as high as they are. Lenders see success in the short-term loan field when they receive enough business volume to cover their operating costs.
In Canada, three major chains issue the majority of payday loans. Smaller chains and single-owner stores exist in the country, but in the United States, United Kingdom and Australia, the market is more scattered.
While there are those who question whether the industry is ethical, research shows that most societies don’t object to its existence. Governments around the globe are increasing regulatory action against the industry, but most have not made the financial arrangement illegal. Around the world, online payday loans are a popular option due to their accessibility and convenience.
Staying Safe When Requesting Payday Loans Online
Online payday loans are growing in popularity. The request procedure tends to be hassle-free and fast. To stay safe, borrowers should make sure that the payday loan site that they’ve selected features the proper security. This ensures that the consumer’s data remains secure. Payday loans online are available to those who are of legal age. Lenders must be able to verify that a borrower earns enough income to qualify. Borrowers will also need to have a checking or savings account.
When it comes to payday loans online, Canadian lenders will check the consumer’s credit history. Those who take out short-term loans should work to repay them as quickly as possible. It’s best for borrowers to avoid rolling them into a follow-up loan as this is when major debt accumulation begins. The high fees and interest rates that come with rolling over a loan keeps borrowers in debt.
Payday Loans Keep Some Borrowers Financially Afloat
With the Canadian Finance Organization admitting that payday loans fill a legitimate need, government bodies are becoming resigned to their existence. However, borrowers should use them infrequently, and when they do take advantage of them, they should repay them as quickly as possible. To read more about how payday loans can be a helpful financial option, visit the Personal Money Store.