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Payday Loans: The Good, the Bad and the Ugly

Doris Asiedu

Many times, people turn to payday loans when they need cash and need it fast. In an emergency situation, when there simply isn’t time to consider or even search for other options, payday loans do provide a quick fix. The repercussions and inherent risks of being at the mercy of high interest rates and a lengthy game of catch-up make it difficult to bounce back, however, if you aren’t able to pay the loan back immediately.

Be it health issues or other circumstances, you can quickly find yourself in a larger mountain of debt than you were originally, which can bring on feelings of hopelessness and a damaged credit score.Let’s explore some nitty gritty details of payday loans you may not be aware of.

The Good: Fast Cash

Let’s be honest, you simply can’t predict your car breaking down or your basement flooding. Perhaps the only redeeming factor of payday loans is that you have speedy access to getting cash. As long as you have a valid ID, pay stub, post-dated cheque, and proof of an open bank account, you should be able to get a payday loan.

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If you don’t have any other options, payday loans might seem like a good temporary fix… but it is a double-edged sword. If you take one out, be prepared to pay it off completely within your next pay period, or else you’ll suffer penalty fees and added interest. There’s also a very high risk of falling into the dreaded payday loan cycle. This is when you’re stuck getting payday loan after payday loan as you fall deeper and deeper into debt, which locks borrowers into a cycle of financial distress and payday loan dependency, often resulting in personal bankruptcy.

The Bad: Exorbitant Interest

Payday loans aren’t just expensive, they’re also exorbitant with how much interest you might be charged on top of your loan amount. Many people are unaware of what they’re getting themselves into with a payday loan. In a recent survey, 57% of respondents were unable to identify whether or not payday loans cost more than an outstanding balance or cash advance on a credit card.

The truth is it’s difficult to understand the actual calculation of interest for payday loans. Most people see $21 for every $100 borrowed and think the interest rate is 21% which might seem reasonable compared to the interest rate on their credit card or other credit products. What they don’t realize is that the annualized interest rate actually works out to be more like 546%.

Unfortunately, it gets worse.

The Ugly: Ruined Credit… or Worse

Over 60% respondents from the Financial Consumer Agency of Canada study also mentioned they didn’t have access to a credit card, and probably turned to payday loans as a result.

Failing to pay back these loans can not only further tarnish your credit, but also lead you into a never ending game of catch-up, where interest will make it nearly impossible to pay off your payday loan without outside help. It’s a scary situation to fall into, and one that doesn’t warrant much control on your part because of how quickly the interest mounts.


More often than not, the long-term financial costs of payday loans outweigh their short-term benefits, with the average insolvent payday loan borrower owing 121% of their monthly take-home income to payday lenders. As an agency that helps over 70,000 people dealing with debt every year, we’ve found that payday borrowing is a symptom of much deeper financial problems.

You can avoid many of the debt problems brought on from payday loans by making better, more informed financial decisions. By saving even just $10 a week, you can accumulate enough to help you out in a bind for car trouble, unexpected home issues, or worse.

Unless you are in an emergency situation that requires you to respond with fast cash immediately, take the time to search for other, less extreme options. If you’re having issues with debt or payday loans, consider speaking to a certified credit counsellor. Credit Canada has been in business since 1966. We’re experts and we’d love to help. Feel free to contact us here or call 1.800.276.2272 to get a free, no obligation credit counselling session with an expert who can help you figure out your best options.

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Topics: Payday Loans

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