Payday loans are short-term loans used to cover expenses until the borrower’s paycheck arrives. They are also known as paycheck advance and cash advance. In Canada, the Criminal Code imposes restrictions on payday lenders, with interest charges above 60 percent being criminalized. Some provinces have adopted their own regulations on this type of loans, including British Columbia and Saskatchewan. The Canadian government oversees the services offered by payday lenders and the short-term credit industry in general. This is among the responsibilities of the Financial Consumer Agency of Canada.
Payday lenders, on the other hand, belong to the CPLA or the Canadian Payday Loan Association, which is tasked with lobbying the federal and provincial governments and representing the interests and rights of payday lenders in Canada. The code of conduct of the association includes disclosure requirements. The association has published a report that gives information on the average payday loan borrower. In British Columbia, for example, the average age of customers is 40 years, and 77 percent of them are employed full time. More than one half or 53 percent of respondents have a postsecondary education. Of them, 5 percent have completed professional and postgraduate programs, 16 percent have a university degree, and 32 percent have postsecondary education from a community college. On average, customers expect to pay $29 in administration fees and interest to borrow $100 for a period of 2 weeks. The average amount of debt customers have amounts to $22,765, mortgages included.
Payday loans have disadvantages as well, one being that lenders extend relatively small amounts. Second, the money should be repaid over a short period of time. The major disadvantage of payday loans, however, is that they are offered with high interest rates, which can be much higher compared to those of secured loans and other types of financing.
In general, payday loans are useful as a tool for managing unexpected expenses like necessary travel, a hefty dentist bill, or one’s car breaking down. Persons who find themselves overusing the services of payday lenders may turn to the Credit Counseling Society of Canada which offers assistance and resources. They give advice on other financial institutions that may be better positioned to assist clients in their territory or province. The Credit Counseling Society assists clients by offering debt repayment programs, counseling, and education. In addition, the association helps borrowers realize they have plenty of options – from working things out on their own to attending financial counseling sessions. Financial counselors teach borrowers important money management skills, showing them how to develop realistic spending plans as to reach their financial goals.