Relying on Fast Cash Can Lead to a Debt Cycle
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.
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 may help you get out of a financial jam, but it’s only a temporary solution to a more serious underlying problem.