More Ontarians relying on payday loans, up nearly 30%
Continued research confirms that more and more Ontario residents are relying on payday loan services every year, and it’s pushing them into even heavier debt.
Payday loans are short-term, high-interest loans, usually used during small financial crisises. They are designed to bridge the gap between paycheques. But, if you fail to pay your loan off by the time your payday comes, you are charged extra fees on top of the interest you already owe the lender.
The “Licensed Insolvency Trustee firm Hoyes, Michalos & Associates Inc. reveals that 3 in 10 (31%) insolvencies in Ontario in 2017 involve payday loans, up from 27% in 2016.”
Which means that indebted Ontarians are taking payday loans out for more than they have in assets, a trend that has been increasing for six consecutive years since the study began. Insolvency is the step before bankruptcy.
"Insolvent borrowers are now 2.6 times more likely to have at least one payday loan outstanding when they file a bankruptcy or consumer proposal than in 2011. This is a cycle that is just not sustainable."
The average payday loan size during last year was $1,095 versus 2016’s average of $974. A small increase of around $100 that proves people in debt are requiring more money to stay afloat in a province that has seen its cost of living increase steadily in varied categories like home insurance, home prices, rent, auto insurance and more. “One in ten loans are $2,500 or more.”
Borrowers are also lengthening their loan terms, giving them smaller payments over a longer period of time.
"The problem is high-cost, longer term loans do not help someone who carries an average unsecured debt load of $33,461. In fact, it makes their situation much worse. The average insolvent payday loan borrower owes $3,464 in payday loans, or $1.34 for every dollar of monthly take-home pay, on top of $29,997 in other unsecured debts. They are using payday loans to keep up with existing debt repayment.”
Clients tell the researchers that they are aware of how unsustainable payday loans are, but need to use them in order to pay their other debts and bills on time.