Why You Should Never Get a Payday Loan (Canadian Edition)

Updated on June 2, 2019

What is a Payday Loan?

Payday loans are simply loans for small sums of money - even as low as $100 - that consumers take out in order to help them with necessities until their next paycheque.

It sounds like a good idea, but it's not. In Ontario, Canada, many payday loan companies advertise something along the lines of: "Borrow $100 for $15" - this sounds cheap until you understand that it's only for 14 days (two weeks).

How much do payday loans REALLY cost?

Credit cards are CHEAP compared to payday loans!
Credit cards are CHEAP compared to payday loans!

How do Percentages Work?

In order to understand interest rates, you need to understand how percentages work and what they mean. This is easier than it sounds. The gist of it is as follows:


100% = 1

Therefore: 100% of $100 is $100

100% of $300 is $300

100% of $950 is $950


Next, 50% = 0.5, or 50% = half, or 0.5 = half

Therefore: 50% of $100 is $50

50% of $300 is $150

50% of $950 is $475


Then, 200% = 2, or 200% = double, or 2 = double

Therefore: 200% of $100 is $200

200% of $300 is $600

200% of $950 is $1900


What about something closer to the interest rates that payday loan places charge?

300% = 3, or 300% = triple, or 3 = triple

Therefore: 300% of $100 is $300

300% of $300 is $900

300% of $950 is $2850


I'm sure you wouldn't want to borrow $300 at 300% interest rate and end up paying back $900, yes?

Understanding WHY Payday Loans are a Rip-Off

The main thing you need to know in order to understand why payday loans are such a rip-off is something called APR, or annual percentage rate.

APR is a measure of how much extra money has to be paid over the course of ONE YEAR. That's right, one year or 12 months or 365 days. NOT 14 days or two weeks or even two years. ONE YEAR.

Credit cards, for example, charge around 23% APR when you take a cash advance or use the card to buy something and do not pay back in full. So, if you spent $100 on a credit card, and didn't pay back for one year, you'd have to pay $123 to clear off your balance (of course, however, credit cards require minimum monthly payments).

If you have money and put it in a savings account, the bank will probably pay you 1.5% APR, which means that if you left $100 in a savings account for one year, you'd have $101.50 at the end of the year.

So... what is the APR for payday loan companies? 391%!!!

If you borrow $100 from a payday loan company and pay them back $115 ($100 loan + $15 interest) after 14 days... it seems like you only paid 15% interest, right? WRONG! The interest rate is calculated based on a period of one year, which is why it is called annual percentage rate or APR.

There are 52 weeks in a year, so divided in half, that's 26 periods of 14 days... which means that if you want to know the APR of the loan just mentioned (borrow $100 for $15), the math is: $15 x 26 = $390. So, if you borrowed $100 for ONE YEAR from a payday loan company, you would owe them $490 at the end of the year ($100 loan + $390 interest).

Pretty bad deal, right?

Alternatives to Payday Loans

You should do everything in your power to avoid borrowing from payday loan places. Don't just cave in and think that it's an easy route out... because at the end of the day, you will lose more than you gained.

Do you have family or friends that you can borrow from? Do you have bank loans or credit cards that you can borrow from?

Can you make do without whatever it is you're needing to borrow money for?

If bills are due and you don't yet have the money, you can always call the respective companies and let them know; virtually all companies are willing to give you some more time to pay your bills, as long as you let them know.

If an automatic debit is coming out of your account and you don't have overdraft, you can even go and speak to your bank manager and ask them to perhaps extend you a temporary overdraft.

If you have really run out of options, it would actually be wiser to just be late on paying your bills and pay them when you can. Yes, banks charge hefty NSF fees ($48 NSF fee at most Canadian banks these days), but if you talk to your bank manager about your situation, they are sure to cut you some slack.

Do you need money for food? Find your local food bank or other charity and you are sure to be helped.

If any of these situations happen to you again and again... and you find yourself constantly turning to payday loan places... you really need to cut back on your spending. A dollar here and a dollar there really adds up. Write down everything you buy and you will be shocked at how much money you spend - and how much you waste.

This article is accurate and true to the best of the author’s knowledge. Content is for informational or entertainment purposes only and does not substitute for personal counsel or professional advice in business, financial, legal, or technical matters.

Questions & Answers

    Comments

      0 of 8192 characters used
      Post Comment

      No comments yet.

      working

      This website uses cookies

      As a user in the EEA, your approval is needed on a few things. To provide a better website experience, toughnickel.com uses cookies (and other similar technologies) and may collect, process, and share personal data. Please choose which areas of our service you consent to our doing so.

      For more information on managing or withdrawing consents and how we handle data, visit our Privacy Policy at: https://toughnickel.com/privacy-policy#gdpr

      Show Details
      Necessary
      HubPages Device IDThis is used to identify particular browsers or devices when the access the service, and is used for security reasons.
      LoginThis is necessary to sign in to the HubPages Service.
      Google RecaptchaThis is used to prevent bots and spam. (Privacy Policy)
      AkismetThis is used to detect comment spam. (Privacy Policy)
      HubPages Google AnalyticsThis is used to provide data on traffic to our website, all personally identifyable data is anonymized. (Privacy Policy)
      HubPages Traffic PixelThis is used to collect data on traffic to articles and other pages on our site. Unless you are signed in to a HubPages account, all personally identifiable information is anonymized.
      Amazon Web ServicesThis is a cloud services platform that we used to host our service. (Privacy Policy)
      CloudflareThis is a cloud CDN service that we use to efficiently deliver files required for our service to operate such as javascript, cascading style sheets, images, and videos. (Privacy Policy)
      Google Hosted LibrariesJavascript software libraries such as jQuery are loaded at endpoints on the googleapis.com or gstatic.com domains, for performance and efficiency reasons. (Privacy Policy)
      Features
      Google Custom SearchThis is feature allows you to search the site. (Privacy Policy)
      Google MapsSome articles have Google Maps embedded in them. (Privacy Policy)
      Google ChartsThis is used to display charts and graphs on articles and the author center. (Privacy Policy)
      Google AdSense Host APIThis service allows you to sign up for or associate a Google AdSense account with HubPages, so that you can earn money from ads on your articles. No data is shared unless you engage with this feature. (Privacy Policy)
      Google YouTubeSome articles have YouTube videos embedded in them. (Privacy Policy)
      VimeoSome articles have Vimeo videos embedded in them. (Privacy Policy)
      PaypalThis is used for a registered author who enrolls in the HubPages Earnings program and requests to be paid via PayPal. No data is shared with Paypal unless you engage with this feature. (Privacy Policy)
      Facebook LoginYou can use this to streamline signing up for, or signing in to your Hubpages account. No data is shared with Facebook unless you engage with this feature. (Privacy Policy)
      MavenThis supports the Maven widget and search functionality. (Privacy Policy)
      Marketing
      Google AdSenseThis is an ad network. (Privacy Policy)
      Google DoubleClickGoogle provides ad serving technology and runs an ad network. (Privacy Policy)
      Index ExchangeThis is an ad network. (Privacy Policy)
      SovrnThis is an ad network. (Privacy Policy)
      Facebook AdsThis is an ad network. (Privacy Policy)
      Amazon Unified Ad MarketplaceThis is an ad network. (Privacy Policy)
      AppNexusThis is an ad network. (Privacy Policy)
      OpenxThis is an ad network. (Privacy Policy)
      Rubicon ProjectThis is an ad network. (Privacy Policy)
      TripleLiftThis is an ad network. (Privacy Policy)
      Say MediaWe partner with Say Media to deliver ad campaigns on our sites. (Privacy Policy)
      Remarketing PixelsWe may use remarketing pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to advertise the HubPages Service to people that have visited our sites.
      Conversion Tracking PixelsWe may use conversion tracking pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to identify when an advertisement has successfully resulted in the desired action, such as signing up for the HubPages Service or publishing an article on the HubPages Service.
      Statistics
      Author Google AnalyticsThis is used to provide traffic data and reports to the authors of articles on the HubPages Service. (Privacy Policy)
      ComscoreComScore is a media measurement and analytics company providing marketing data and analytics to enterprises, media and advertising agencies, and publishers. Non-consent will result in ComScore only processing obfuscated personal data. (Privacy Policy)
      Amazon Tracking PixelSome articles display amazon products as part of the Amazon Affiliate program, this pixel provides traffic statistics for those products (Privacy Policy)
      ClickscoThis is a data management platform studying reader behavior (Privacy Policy)