Payday Loans, Easy Money = Big Problems
We have all run into situations where we need fast, easy money and if you have no access to a financial institution or a credit card where do you go?
While Payday loan companies market their business as a convenient and quick way to get some easy money when you’re in a bind, they do not go into much detail about how hard they can be to repay.
When I was married, money got tight pretty quick when my husband got hurt at work while I was on maternity leave. Bills were falling behind and every week just seemed like a struggle to get through. Money was always on my mind as I was always figuring out how I was going to buy diapers and milk, and pay the phone bill, among everything else. One day my husband suggested a payday loan and looking back now I wish he hadn’t.
Convenience of a payday loan
The Internet makes almost everything easy these days, including getting a loan. If you have online banking and your pay is direct deposited, getting a payday loan online is as easy as filling in an application, stating your personal information, employer and how much money you make.
It’s too easy actually and depending which company you are dealing with and your bank, you may have the money as soon as 30 minutes up to 48 hours after being approved. This money is deposited directly in your bank account.
When things got stressful, I will admit I was not always thinking clearly and this sounded great! Minimal effort was required and it provided a little financial relief which unfortunately didn’t last long.
Payday Loan Costs
These companies even tell you this! Money Mart states right on their application ‘Payday loans are high cost loans’.
Your first loan with any company is usually a small amount, ranging from $60-$300.00 depending which company you are dealing with. After successfully paying back your first loan you are most often eligible for a higher loan amount in the future.
In Canada the cost of borrowing per $100.00 dollars varies across the country. In Alberta, British Columbia and Saskatchewan every $100.00 borrowed will cost you $23.00. PEI is most expensive at $25, Ontario at $21.00 and Manitoba being the cheapest at $17.00 per $100.00 borrowed.
Being in Ontario, we borrowed $300.00 with the total including the cost of borrowing being $363.00 on a two-week loan period. I quickly rationalized in my head that I would have enough money to pay this back on my next paycheque, which at this time was my maternity pay.
Payday Loan is a continuous cycle
I did have enough to cover the payment as I knew I would, but now I was left with little money to get by for the next two weeks. We went from living paycheque to paycheque to our pay being spent before we even received it. So what did we do then?
We borrowed the money again! This pattern continued for a couple of months. A $300.00 loan ended up costing us over $600.00 by the time we were able to pay it off. We paid more than double the amount we originally borrowed in only a few months. What a waste of money. If only we had a proper budget and were more aware of our spending we could have avoided this altogether.
I remember thinking to myself on many occasions, I really wish my paycheque wasn’t gone already and still a few days or almost a week before payday. It was depressing to think that I was constantly behind.
I wanted my paycheque to be mine again, not going to the payday loan company. It put such a burden on my finances, making it hard to pay some of my other bills and provide for my family.
Saying goodbye to a Payday loan
Paying off a payday loan should be top priority of things to do as it is in your best interest to save your money in the long run. Mr. CBB has many free money saving tools on the blog which you can download that make creating and sticking to a budget easier. Making a budget for yourself may be required to pay off your loan and a great tool to avoid needing a loan in the future.
If you cannot afford to pay the loan back in full without having to re-borrow, try to lower the amount you borrow each time. I got serious about getting rid of this debt and after handing over $363.00 of my paycheque for a $300.00 loan, I only re-borrowed $250.00 with the cost of borrowing making it $302.50, $200 for the next loan and so on. It took some time to pay it off but the amount owing was constantly decreasing while easing the strain on other areas in our budget.
Although it depresses me to look back on how much money we wasted on payday loans, it was a good eye-opener for me. It was also another stark reminder that the need for a budget was crucial.
Is the convenience of easy money worth it to you?
Katrina is regular contributor for Canadian Budget Binder and is as passionate about personal finance as she is gardening. Katrina is a horticulture graduate with over 10 years experience with landscaping and greenhouse production.
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