EP044 Dangers of Payday Loans

For many millionaires-in-the-making, getting an advance on your pay cheque may sound like a dream come true. The idea and concept of getting a payday loan may seem great on the surface – and may even help you pay for unexpected bills and expenses that come up between pay cheques – but they can often lead to long-term financial trouble.

 

Like any loan, payday loans need to be paid back, and many young millionaires-in-the-making may not realize the negative impact these loans can have on their financial future.

 

Today, I explain what payday loans are as well as the dangers of getting a payday loan to help pay for your expenses. I explain the true purpose of a payday loan, the maximum amount you can borrow as well as the financial and legal implications you may face by not paying it back on time. I also explain why payday loans are considered one of the most expensive money-borrowing options and share alternative options you should consider the next time you need to borrow money.

 

“Once you start using payday loans, you can get caught in a vicious cycle that necessitates their continued use.” – Tracey Bissett

 

This Week on Young Money:

 

• What payday loans are and how they work.
• The maximum amount you can borrow from your pay cheque.
• The true purpose of payday loans and the dangers of using them for day-to-day expenses.
• What to expect when applying for a payday loan.
• The importance of reading, understanding, and asking questions about a payday loan agreement before you sign.
• The true cost of payday loans and how it compares to borrowing by way of a line of credit, overdraft protection, and a credit card cash advance.
• The mild and severe legal implications you can expect if you don’t pay back your payday loan on time.
• Alternative money-borrowing options.

 

Money-Borrowing Alternatives to Payday Loans:

 

1. Talk to your employer about converting your vacation days into cash.
2. Ask for more time to pay your bills – creditors can be flexible if you have a plan for repayment.
3. Consider cheaper ways to borrow money:

• Line of credit
• Overdraft protection
• Cash advance on a credit card
• A personal loan
• A private loan from friends or family

 

Resources Mentioned:

 

• Financial Consumer Agency of Canada – Payday Loans

 

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