TORONTO — In Hamilton, Ont. woman says she was struggling financially when she was given the opportunity to consolidate her debt with a loan from a payday loan company.
“I got an offer from a payday loan company and decided to take it and now I deeply regret it,” Kathleen Kennedy told CTV News Toronto.
Kennedy said she took out the nearly $4,300 loan a year and a half ago. Even though she paid $252 a month, she still has a lot left to pay and due to the pandemic, she says she can no longer continue to make her payments.
She says the interest rate on the loan is 47%.
“I realized that was a very big mistake. The interest rate is outrageous and this particular company is harassing me and I never want to go through that again,” Kennedy said.
There are nearly 900 licensed payday loan companies in Canada. The Consumer Finance Association of Canada – which represents these companies – says that for many it is the only source of credit for those who need cash fast.
However, with many families under financial pressure due to COVID-19, Credit Canada Debt Solutions says people who rely on payday loans could find themselves in even more financial trouble.
Keith Emery is with Credit Canada Debt Solutions and says they “frequently” see people with up to six payday loans.
The credit counseling service says problems with payday loans include extremely high interest rates and excessive fees and penalties. The agency says that it is possible for payday loans to ruin your credit rating and credit score and there is a risk of falling into a payday loan cycle.
Due to the structure of a payday loan, interest is calculated differently than a traditional bank loan, so the equivalent interest rate can be very high.
“The effective interest rate on a payday loan is around 400%. So, for example, if you borrowed $1,000 after a year, you would have repaid up to $4,000 in interest and fees,” Emery said.
Kennedy wishes she hadn’t taken out a payday loan and advises others to be careful and consider other options before agreeing to one.
“I would say they should be wary of these companies and think seriously before taking out this type of loan,” Kennedy said.
Some companies are now offering payday loans online, but be very careful before using these services.
They may not be authorized or work outside of Canada, so if you have a problem it may be difficult to resolve.