For many, payday loans appear to be a simple answer. They’re easy to get: a small, short-term loan mostly requiring a source of income and a checking account with almost no credit checks. But this convenience comes at huge costs and payback requirements that can be tough to meet. A clear understanding of the implications is key.
The Appeal and the Drawbacks
Payday loans are a form of short-term borrowing. Easy to get, high-cost and designed to tide you over until you next get paid. They may be a good idea in small doses. But Ontario law has made sure that they are still horribly expensive. This is because the law allows for fees that, when annualized, result in poorly regulated and extremely high annual percentage rates. Meaning, you can get into trouble with even the smallest amounts if you do not pay them back in a timely manner.
But the problem is that repaying leaves you short for the next month, so you’ll take another loan, and keep on doing that for the next few months or even years. And that “cycle of debt” thing can get out of hand really fast, especially if you’re living in Toronto, where the cost of living is through the proverbial roof.
Looking Beyond Payday Loans
If payday loans are too expensive, what’s the right solution when you have an unexpected expense? Here are a few other ways to think about paying for it. If you have the credit available and are not using your credit card for everyday expenses, short-term expenses can be charged to a credit card. This option is almost always less expensive than a payday loan or a car title loan.
Even small adjustments to a budget can make a big difference. If you can squirrel away even a little bit each month, you will soon have an emergency fund that reduces the need for a small loan. It’s not easy, with the cost of living in Toronto as high as it is. Small, consistent contributions can add up over time.
Building a Stronger Financial Foundation
Taking out loans in a financial emergency doesn’t have to be a bad thing, as long as you understand the terms of repayment and are sure you won’t be left in a cycle of ongoing debt. Before signing on the dotted line of any short-term loan, shop around to see if another option may be lower cost or more flexible if you need to find a way to repay in a manner you can afford.
Becoming financially resilient in Toronto requires planning and knowledge of your rights. Take the time to compare each borrowing method with your personal situation and take steps little by little to build up your savings to guard against the pain and expense of payday loans. In a city like Toronto, where the unexpected is standard, you’ll be glad you’re ready to face it.
