You could easily turn to payday loans as a quick fix for your financial issues if you need access to money right away and you can’t wait for a personal loan to be approved. However, payday loans can be a very costly and risky form of borrowing money in Canada, and people who don’t pay them back on time risk getting caught in a vicious cycle of debt that may take a toll on them. 

People often think payday loans are a quick and simple way to obtain money. Payday loans were created to assist borrowers in covering short-term expenses until they receive their next paycheck. Although this type of financing has benefits, not everyone should use it. Payday loans can be very expensive, despite the fact that they are easy to obtain, even with poor credit. Canadian borrowers have a variety of other options; however, most people would prefer to address their financial problems first before considering whether or not they made the right decision. Before you get caught up in the web of continual use of payday loans, let’s look at some details.

What are Payday Loans?

Payday loans are outrageously costly forms of borrowing money. They range from a few dollars to $1500 in short-term loans that must be fully repaid with your next paycheck, either by a postdated check or a straight debit from your debit account. The rules and regulations vary by province, but the goal is the same: trap borrowers into a debt cycle in which they borrow more money to pay off the initial debt due, building into an incredibly high-interest rate over time.

Why Should You Avoid Payday Loans?

Without a doubt, payday loans tend to be quick and handy; however, this type of lending can have severe drawbacks. This indicates that payday loans are not appropriate for all borrowers and may make it more difficult for your financial position to improve. The following are the reasons why you should avoid payday loans.

1. They are expensive

Payday loans are expensive. Some lenders charge interest rates of up to 780% APR, which can significantly raise the overall cost of financing. When the costs of borrowing are so high, it is understandable why some people find it difficult to pay back payday loans since it leaves them to keep borrowing more to make up for the previous loans.

2. Payday loans can be predatory

Payday loans are viewed as predatory because they prey on people with poor credit and low income. Although there are many other lenders and financial organizations that do the same thing, payday lenders have a bad reputation due to their aggressive collection efforts in the past. However, the market is now more regulated, but it is still crucial to consider your options before submitting a payday loan application.

3. Borrowers may be trapped in a debt cycle.

You might fall into a debt cycle if you don’t pay back your payday credit on time. This could result in a very challenging scenario if you find yourself in the position of needing to take out a second loan to pay off your current debt. Payday loans may increase borrowers’ danger of getting trapped in debt because they often have exorbitant interest rates attached. The majority of payday lenders demand repayment of the debt within two to four weeks. Making this tight deadline can be challenging, especially when you’re living paycheck to paycheck. If you miss the payment date, you’ll incur additional charges. A spiral of debt occurs when people take out a second payday loan to pay off the first one. 

4. Payday loans don’t build credit

Payday loans do not build credit since lenders do not report your payment history to credit bureaus. No matter how diligent you are in repayment, it doesn’t build credit.

What Other Alternatives Can You Use to Get Out of Debt?

Being in debt can be a difficult position to be in, but note there is always a solution to every situation one can be in, one needs to be calm, and take a deep breath so the situation doesn’t get worse. Fixing your financial issue will go a long way than patching things up. Could it be that credit card debt, payday loans, and other unsecured debts are affecting your finances? Are you so overwhelmed with debt that you are constantly worried about your finances? Do not worry! We can help you. You can speak with one of our debt experts at EmpireOne Credit Solutions. We could help you get your debt reduced by 80%, and interest will stop immediately. Call us at (416) 900-2324 to schedule a free consultation, or fill out the form on this page. Debt-free, feels good!