What could be easier than a payday loan? Created to help people who find themselves in a bind once in awhile, payday loans are an excellent way to get yourself into a whole lot of financial trouble if you are living from paycheck to paycheck. The idea behind a payday loan is that you borrow money from a high-interest lender for a very short period, typically until your next weekly or biweekly paycheck. Although the fees can be substantial, the loans are great when you have an unexpected emergency or you just need to take care of something in a jam.
What they are not good for is someone who is having a hard time paying their monthly bills and are in need of financial services Winnipeg. Many Canadians are finding that their disposable income is anything but disposable, which is putting an entire class of society in the red every month. If you have to rob Peter to pay Paul, you can see how that can quickly lead to a downward financial spiral. The increase in Canadian citizens taking out payday loans is telling economic forecasters that the economy might not be as stable as many people hope.
Only one indicator of what is going on in Canada, other high-interest loans are being taken out more frequently than the economy can handle. According to the Financial Consumer Agency of Canada, as many as 90% of Canadians are using high-interest payday loans to get from one month to the next. They are doing so to avoid late charges, but they may be unwittingly setting themselves up for much more disaster than they realize.
Payday loans are exorbitant — in some provinces the annual fees can be as high as 500%, which is twice the amount that was charged when they first came to market. Seeing the increasing demand, companies are maximizing profits and taking full advantage of putting out risky loans. You can’t blame them — with so much money out there floating around, they have to cover their risks and potential losses.
Economists have already spotted a trend in how the average Canadian is saving their money. Having no safety net and extending themselves beyond their financial means is the new normal for the average person. That means that when they hit an emergency, they don’t have a viable way out. This leaves them at the lender’s mercy. Prior payday loan customers were surveyed, and out of 1,500 loan users, just over 40% understood the high cost of payday loan interest.
Although the assumption that you would make is that a payday loan borrower would be low- to middle-class, the truth is that as much as 7% of borrowers have incomes in excess of $120,000. For the first time in Canada’s history, the level of debt that the citizens hold outweighs the gross domestic product. Debt is at 100.5% of the gross domestic product, which has many people worried.
Most of the debt crunch people are feeling stems from the rise in real estate prices around the nation. The federal government has looked at the problem and tried to provide a safety net — but if things continue on the same trend, that could spell some serious problems for both the real-estate market and the average homeowner. Although it’s a red-hot market now, things can cool down faster than anyone is expecting, and they definitely are not prepared or planning for it.
After what went on in our own country when the foreclosure disaster hit and people were left with no recourse, the signs are all there that the same could potentially happen across Canada. Payday loans are just one indicator that has many economic experts worried about what the future will bring. Canada is a country that typically prides itself by not falling into the same debt pitfalls as Greece, Italy, the United Kingdom and the United States, but if Canadians don’t heed the same signs that were seen before the other countries’ fall from grace, they are likely to meet the same demise.