By Jasmin Brown

BDO Debt Solutions

What you should know about payday loans

Mar 16, 2023 | 9:12 AM

“The views and opinions expressed in this article are those of the author and do not necessarily reflect the position of Pattison Media and this site.”

Many people seek out payday loans because they are unable to obtain traditional financing.

Often times, the money is desperately needed for an unexpected emergency expense that needs to be paid quickly. Payday loans are also typically very easy to get, which makes them appealing when you are in need of fast cash.

Although payday loans often appear helpful at first, they can really put you in a precarious financial situation if you are not careful. It is important to understand how they work and the risks involved in using them.

Fees and interest rates on payday loans in Saskatchewan

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In Saskatchewan, lenders are allowed to charge up to $17.00 for every $100.00 given on a payday loan. That amount must include all types of fees (interest, loan administration, processing, application and brokerage fees). The fee is due and payable on the loan repayment date, which is typically just one pay cycle away. The cost of borrowing can therefore add up quite quickly. The fee charged for a missed payment is set at $25.00. In Saskatchewan, up to $1,500.00 can be borrowed on a payday loan.

To demonstrate the possible fees on a payday loan, assume that you borrow an amount of $1,000 on a payday loan, and that the repayment date is in 14 days. The cost of borrowing will be $17.00 x 10 = $170.00. The total amount that you must repay in 14 days is therefore $1,170.00. To put that in perspective, that works out to an APR interest rate equivalent of 443.21%. Relatively speaking, this type of loan can be quite costly.

Additional default interest of 30% per annum can also be charged if you fail to pay back the loan.

The difficulty with payday loans

Let’s assume that you have an unexpected repair bill of $300 that needs to be paid immediately, so you get a payday loan to cover it. The payday loan is able to help you out in the immediate situation. However, if you did not have the $300 for the repair bill, that is also a sign that you need your full pay cheque to cover your bills, so paying back the $300 + fees could prove quite difficult.

This often leads to people needing to take out another payday loan to fill the gap. That is where the payday loan loop can easily begin. You become reliant on one loan to pay another, and the fees continue to build up. It can become very difficult to exit the cycle once you find yourself in it.

Some people report that payday loans have offered them a lifeline when they have needed it most. Many others report that they should have explored other options and avoided even getting the first one. If you are considering getting a payday loan, make sure that you do your research, understand the fees involved, and are sure that you are able to pay off the balance due by the due date.

If you are having trouble making ends meet each month, finding the right debt solution can help. Visit the BDO Debt Solutions website for more information about bankruptcy, or call 1 855 BDO DEBT to book a free, no obligation consultation.

Jasmin Brown is a Senior Vice President overseeing the insolvency practice in Saskatchewan. She is committed to providing creative and practical debt solutions with empathy, understanding and professionalism to help people overcome their financial difficulties.