Avoid ‘PayDay Loan’ Hell

One of, if not the, biggest pet peeve of mine is the Payday Loan.

I live in Hamilton Ontario, and our city is the first in Canada to limit the number of these pop up loan sharks who feed on the desperation of our most vulnerable citizens. It’s a start, but barely. It. Makes. Me. Crazy.

You know the tactics: “$300 for $20,” “No credit record denied,” “Solve your money problems with a $1,500 loan today.” UGH!

The bottom line is, there is no way these bandaid solutions will help you. In fact, very quickly, they can make your life a living hell.

Without a deep-end math lesson here, let me throw a few numbers at you.

Let’s look at the $300 for $20 deal. It’s a 2-week loan. You go in, fill out some paperwork, give them your banking info, and walk out with $300 cash. Feels great. Easy peasy.

Two weeks later – at the end of the month – they have access to your bank, and promptly reclaim $320 from your account. This never feels good. Mostly because you likely can’t spare the extra $300 from your income, and will come up short again next month. Two weeks from now, you’ll be back borrowing another $300. Only this time, you don’t qualify for the New Customer Special, and it’ll cost you $50 for the loan.

Of course, if you can’t pay it back, they’ll roll the loan over into another two week loan, and charge you $50 on top of the $20 you already owe. Even if you’re able to pay back the loan a month later, you’ll be out almost $400. This gets ridiculous really fast. They just keep lending you the same $300 – money that, technically, you never pay back – and they keep collecting the $20-$50 from you every month. It’s actually better for them if you don’t pay it back.

If there was a way I could take $300 of my money, and invest it so that I make $50 a month off of it, I would sell my first child to come up with the cash.

(Okay, maybe not a kid, but seriously, I’d find the money!)

Over the course of a year, that’s a return of 200%!!!

A good investment planner will tell me that 5% is a solid return on the use of my money. 15% is stellar!

200% is black magic. Legally, 30% is considered Loan Sharking.

And the Payday Loan places get away with it because they call it an ‘administration fee,’ not ‘interest.’

If you’re already in to these guys, do everything in your power to pay them back. And never go near them again. Follow my budgeting and credit tips here on this blog to help get on track so that you don’t need to borrow.

Fact is, if you are in a position where you need to borrow from a Payday Loan outlet, you CANNOT AFFORD to borrow from a Payday Loan outlet.

This is probably the best advice I could ever give you. Ever.

Alex.

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