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The Ins and Outs of Payday Loans in British Columbia

May 26, 2016

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Many Canadians have taken out loans from payday advance companies in order to make ends meet between paycheques. It is understandable that unexpected life events can happen that make using a payday loan company feel like the only option. We understand how stressful it can feel to be stuck in the payday advance cycle.

Canadian Dollar Puzzle

According to the Parliament of Canada, the definition of a payday loan is a short-term loan (less than $1,500) used to bridge the financial gap between each pay period. Typically, payday loans have a repayment period of 2 weeks to 1 month, which is in line with your upcoming pay date. Usually, the fees associated with a payday loan are astronomical.

Recently, a report released stats on the number of British Columbians borrowing from payday loan companies, and that it has increased over the last two years, with an astonishing 198,000 people using payday loans on a regular basis. This same report states that 54% of pay loan users in British Columbia use payday loan companies because they need access to emergency cash between pay days.

Example Scenario

Let’s consider this scenario: you borrow $300 to get you through to your pay cheque two weeks from now. The borrowing cost is between $19.99 and $23 per $100 borrowed. This means you would be required to pay back between $360 and $370 to the payday loan company after a period of 14 days. Once you’ve repaid the loan, you will be short $360 to $370 from your future pay cheque without even having received the money yet!

It sounds like a pretty simple calculation, but as you can see it is quite expensive to borrow over such a short period of time; if you calculate the annual interest rate it is somewhere between 521% and 599.5%. This cycle can be a difficult one to get out of when the borrowing costs eat into your net pay more and more each month.

Business Practices and Consumer Protection Act

On November 1, 2009, the BC Government implemented amendments to the Business Practices and Consumer Protection Act to regulate payday loan companies by capping the fees and setting a maximum lending amount. The Act also prohibits a lender to provide more than one loan at a time. Despite these amendments, borrowers must make themselves aware of the cost of borrowing and the potential risk involved.  To learn more information on the Act and to understand your rights when using a payday loan company, visit the Consumer Protection BC website.

If you are using payday loans to manage your debt load and monthly expenses, it may be a warning sign that you are experiencing financial difficulties. Contact a Licensed Insolvency Trustee to find out what options are available to gain financial control.

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