Hamilton, Ont. a woman “deeply regrets” that she took out a payday loan consolidation with an interest rate of 47%

TORONTO – In Hamilton, Ont. A woman says she was in financial difficulty when she was given the opportunity to consolidate her debt with a loan from a payday loan consolidation

“I received an offer from a payday loan consolidation company and decided to take it and now I deeply regret it,” Kathleen Kennedy told CTV News Toronto.

Kennedy said she took out the nearly $ 4,300 loan a year and a half ago. Even though she paid $ 252 per month, she still has a lot more to pay and due to the pandemic she says she cannot continue making her payments.

She says the interest rate on the loan is 47 percent.

“I realized it was a really bad mistake. The interest rate is outrageous and this particular company is pestering me and I never want to go through that again, ”Kennedy said.

There are nearly 900 licensed payday loan companies in Canada. The Canadian Consumer Finance Association – which represents these companies – says that for many it is the only source of credit for those in need of quick cash.

However, with many families under financial pressure from COVID-19, Credit Canada Debt Solutions says people who depend on payday loans could find themselves in even more financial problems.

Keith Emery works for Credit Canada Debt Solutions and says they “frequently” see people with up to six payday loans.

The credit counseling service says the problems with payday loans include extremely high interest rates and excessive fees and penalties. The agency says it’s possible for payday loans to ruin your credit rating and credit score, and there’s a risk of falling into a payday loan cycle.

Due to the structure of a payday loan, interest is calculated differently from a traditional bank loan, so the equivalent interest rate can be quite high.

“The effective interest rate on a payday loan is around 400%. So, for example, if you borrowed $ 1,000 after a year, you would have paid back up to $ 4,000 in interest and fees, ”Emery said.

Kennedy wishes she didn’t have a payday loan and advises others to be careful and consider other options before accepting one.

“I would say they should be wary of these companies and think carefully before taking out this type of loan,” Kennedy said.

Some companies now offer payday loans online, but be very careful before using these services.

They may not be licensed or work outside of Canada, so if you have a problem it may be difficult to resolve.

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What happens when you can’t pay off a payday loan consolidation?

A default on a payday loan consolidation can result in bank overdraft charges, collection calls, damage to your credit scores, a day in court, and garnishment of your paycheck.

Don’t think that it can’t happen because you only borrowed $ 300.

“If you have a valid, binding legal agreement to pay off this debt, and you’re in a state where they can sue you and garnish your paycheck, you’re playing a chicken game that you’re going to lose. Said Bruce McClary, spokesperson for the National Foundation for Credit Counseling.

If you cannot refund a payday loan, you could pay off debt for less than you owe, or file for bankruptcy if your debts are overwhelming. Here is what you can expect payday loan consolidation

Bank withdrawals and collection calls

Payday lenders don’t waste time when the money you owe is owed.

They will immediately withdraw the money from your bank account if you have given them access to it under the loan agreement. If the debits are not made, they can split the charges into smaller pieces for the purpose of extracting the money that is in your account.

Each unsuccessful attempt may trigger bank charges against you. Successful attempts could drain your bank account and bounce other transactions, incurring fees as well.

At the same time, lenders will begin to call, send letters from attorneys, and contact relatives or friends that you used as references when you took out the loan. By federal law, lenders can only ask for help locating you – they can’t reveal where they’re calling from unless asked or explained to someone about your debt situation. it would be.

Free tools to fight debt

NerdWallet helps you stay on top of upcoming payments and understand your debt allocation.

Jail time? No, but threats are common

Failure to repay a loan is not a criminal offense. In fact, it is illegal for a lender to threaten a borrower with arrest or jail. Nonetheless, some payday lenders have been successful in using bad check laws to file criminal complaints against borrowers, with judges falsely approving the complaints.

The Consumer Financial Protection Bureau advises anyone threatened with arrest for non-payment to contact their state attorney general’s office. You should never ignore a court order, even if the criminal complaint was filed in error.

A chance to negotiate

A lender would rather collect money directly from you than sell your debt to an outside collection agency. Third party debt collectors may only pay pennies on the dollar to buy your debt. If you can, start by offering 50% of what you owe to pay off the debt.

“Tell the lender, ‘Look, I just can’t pay you and I’m considering bankruptcy,’ says John Ulzheimer, a credit expert who has worked for the credit rating company FICO and the Equifax credit bureau. “As soon as you start using the word BK they get really serious because BK means they get nothing.”

Get a written agreement and make sure the document says your balance will be reduced to zero. In official terms, you want the debt to be “exhausted”.

If you are unable to settle, make sure you know how to deal with debt collectors and what practices are illegal. For example, debt collectors can’t call you over and over again or make false statements or threats about how much you owe.

Summons to court

If you think collection agencies don’t bother to sue for small amounts, think again.

Almost all of the consumer lawsuits today are for relatively small amounts, says Michael Bovee, president of the Consumer Recovery Network, a debt settlement company.

Lenders typically win because consumers do not appear in court, according to a 2020 analysis by Pew Charitable Trusts. The judge then makes a default judgment and the court can start collecting the money you owe on behalf of the collection agency.

“Under the law of your state, you are exposed to property liens, bank account withdrawals and wage garnishment,” Bovee said.

You should never ignore a lawsuit, says Lauren Saunders, associate director of the National Consumer Law Center.

“Go to court and ask them for proof that you owe them money, because they often show up without proof,” says Saunders.

Other options if you can’t pay a payday loan

You shouldn’t prioritize paying the payday lender over putting food on the table or paying the rent, says Saunders.

No need to apply bankruptcy on top of a small debt, but you might want to consider it if your unsecured debt – including payday loans, credit cards, and medical bills – adds up to half or more of your income.

Don’t delay and hope the debt will magically disappear – it isn’t. “Time never makes debt go away,” says Ulzheimer. “Bankruptcy does it.”

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