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
âI received an offer from a payday loan consolidation company and decided to take it and now I deeply regret it,â 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.
âI 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, âKennedy 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 âfrequentlyâ 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.
âThe 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, âEmery said.
Kennedy wishes she didn’t have a payday loan and advises others to be careful and consider other options before accepting one.
âI would say they should be wary of these companies and think carefully before taking out this type of loan,â 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.