Even though most payday loans in Canada are to be repaid within two weeks, reports have shown that the average payday borrower stays in debt for a much longer time period. Because of the high fees and interest rate, it’s easy to get caught in a repeat cycle of rolling over the loan for another two weeks, or taking out another payday loan in order to pay off old loans.
For example, let’s say an emergency came up and you needed $200 in cash. If your credit cards are maxed out and you don’t have enough money in your chequing or savings account, you turn to a payday advance lender to get the cash. For a fee, you get the money on the spot which brings you a temporary wave of relief. But come payday, you realize you don’t have enough money to meet your day-to-day expenses plus the cost of the loan.
Instead of turning to cash lenders when you’re in need of money, it may be to your benefit to turn to a credit counsellor instead
So, you put down more money to extend the loan, which you hope to pay back by your next payday. However, by this time the amount you owe has increased, making it even more of a struggle to pay off the loan completely. So, you extend the loan once more to buy more time to pay off the loan. And, that’s how the debt cycle starts. As the cycle continues your balance keeps growing, and it could reach a point where you owe more in fees than you do on the outstanding loan.
Instant cash comes with a price, in the form of high fees and interest rates. This method of borrowing money can get expensive, especially if you’ve made a habit out of taking payday loans just to meet your day-to-day expenses. Getting a payday loan , but it’s only a temporary solution to a more serious underlying problem.
Relying on Payday Loans Facilitates Unhealthy Financial Behaviour
It’s convenient and easy to get a payday loan, but the downside with getting easy cash is that it’s a temporary fix for a long-term financial problem. Until you can remedy the underlying problem, getting payday loans will only strengthen unhealthy saving and spending habits, which will cause financial troubles in the future.
It may not seem like a big deal to take out an emergency cash loan, but the reality of it is that more people are turning to quick payday loans to cover everyday living expenses, such as groceries, utilities and rent. This sort of borrowing is particularly harmful, because the more accustomed you are to taking out fast cash loans whenever you need money, the less likely you are to learn how to manage your finances properly.
Managing your finances and knowing how to budget and save for emergencies is crucial to financial freedom. If you’re just managing to get by now with a few payday loans here and there, an external event – such as a job loss, an illness or a major home repair – can really take a hit on your finances. The danger with this is that you may resort to taking out payday loans to cover both the emergency and your living expenses, which could tip you into a debt cycle that’s hard to get out of.
If you find yourself taking out instant loans to cover basic expenses, this is a red flag that signals your finances could use a makeover. More often than not, we need a payday loan because we don’t know how to budget money, how to save, and how to live within our means, and this is something an accredited credit counsellor can help you with.