The Future of Payday Loans in Canada
When it comes to finances, everyone still seems to be struggling a bit to make ends meet and this is no different in Canada than anywhere else in the world. It is thought that there are as many as one million people in Canada who don’t even have a bank account and two million are regularly relying on payday loans to see them through. Some people are put off with the high interest rates of having a bank account, although many seem to be unaware of the level of interest actually being charged by some lenders.
The Reason for Payday Loans
Payday loans are provided by lenders such as Wonga and are available both online and in specific high street stores. In many cases, payday loans can ask as a life saver for people and let’s face it, we all have times when we have unexpected payments to make. For instance, an urgent bill could arrive or there may be necessary repairs for the home or car which come out of the blue. However, it is felt that some lenders are actively attracting borrowers who can’t afford to pay the loan back, leaving them in a cycle of taking out on-going loans, with excessive interest rates.
Interest Rates
As part of reporting by the Financial Consumer Agency of Canada, it has been found that some payday lenders are charging in excessive of 500% interest for loans. For example, if a borrower takes out a loan of $300 for two weeks, they will need to pay back $60. In many cases, borrowers can’t afford to pay back their loan, leaving them to extend it and pay more fees. It is a downward spiral that many vulnerable borrowers find themselves in.
Legislation Changes in the US
Although Canada doesn’t really have any strict guidelines for lenders, apart from a cap on fees, it is thought that this may change in the future. This is particularly the case due to the US implementing changes which offer greater protection for borrowers in terms of payday loans. These changes include better monitoring of those applying for payday loans, ensuring that the borrower can afford to pay it back on time. It also includes a cap on fees, so that they don’t end up becoming excessive.
Postal Services in Banking
There may now be opportunities for postal services in Canada to return to the banking sector, as these are particularly aimed at those with low incomes and could prove to be highly profitable. As it stands, it is very difficult for those on low income to access any resources for extra cash, although there are obviously reputable payday lenders who will only offer loans to those who can afford it and will take it on a case by case basis.
The Future of the Payday Loan
Time will tell whether Canada will also change their laws on payday loans, but it is highly likely, given the recent amendments to the legislation in the US. It is evident that there is a genuine need for payday loans but perhaps just better guidance and awareness for borrowers is necessary.
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