The Real Costs of Payday Loans In Ontario

costs of payday loansThe real costs of payday loans in Ontario

Payday loans are often tempting. If you find yourself behind on bills or if you need money for an unexpected expense, you may think that a payday loan is a good idea. But it’s important to fully understand the real costs of payday loans.

People get payday loans for a number of reasons. Common reasons people consider payday loans include:

  • Convenience
  • A flashy promotion that looks “too good to be true” before you read the fine print
  • Not knowing the actual costs of the payday loan

On the surface, payday loans look like a great way to get money quickly. However, they are also a very expensive way to borrow money. To understand why getting a payday loan isn’t usually a good idea, you’ll need to understand what a payday loan actually costs you.

High Interest Rates and Fees

Payday loans typically come with high interest rates and expensive fees attached to them. For many people, this is the cost of convenience, but most people don’t understand just how expensive payday loans actually are until it’s too late.

How high is the interest? In Ontario, the provincial government passed legislation in 2009 that limited the cost of payday loans to $21 per $100 every two weeks. This might not seem like a lot of money, but it certainly adds up very quickly.

For Example:

If you borrow $300 for 14 days, the cost of borrowing is $63. That means that the APR (annual percentage rate) is 599.64%. That’s almost 600% interest in one year! This is obviously far more expensive than pretty much any other loan you could get.

Payday Loan Alternatives

So what can you do if you need money quickly? There are a number of options that are cheaper than payday loans.

You may want to consider borrowing money from friends or relatives if those options are available to you. It may be embarrassing to ask for help, but it’s often a better idea to do so than to end up paying ridiculous interest rates on payday loans. However, before you borrow money from someone you care about, make sure that you have the ability to pay it back. You don’t want to hurt your relationship with your friend or family member.

You will also want to look into the other types of loans that are available to you. Bad credit loans and title loans are two options that may work for you. While these loans might not come with the convenience of a payday loan, they’ll almost certainly have much lower interest rates. Investigate these loans before thinking about a payday loan. You’ll be happy that you did.

Cut Down on Costs and Avoid Needing a Loan Entirely

One of the best ways to avoid payday loans is to avoid ending up in a situation where you need to get a loan at all. One way to ensure that you have enough money for most unexpected expenses is to cut down on unnecessary costs.

For example, stop buying lunch outside and bring your own lunch to work every day. This can save you $200/month. Quitting smoking will save $100/month or more, depending on how much you smoke, and cutting out buying takeout coffee every morning will save you $150/month. In these examples, you could end up saving $450/month by just by making simple cuts. Look at your own spending and see what you can cut out!

For more information on why you should say no to payday loans — click here 




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