Infographic – Payday loans: market trends
Text version: Infographic – Payday loans: market trends
More Canadians are turning to payday loans, yet many aren’t aware that it’s one of the most expensive ways to borrow money. (Key findings from the Financial Consumer Agency of Canada 2016 national survey of 1,500 payday loan borrowers.)
What is a payday loan? A payday loan is a short-term loan that you promise to pay back from your next pay cheque.
High fees and interest charges make payday loans a very expensive way to borrow money.
It costs $21 per $100 for two weeks, which equals 546% annually.
Payday loans are much more expensive than other ways of borrowing.
These are the costs for all options based on a $300 loan taken for 14 days.
- Payday loans $63
- Cash advance on credit card $7.72
- Overdraft on bank account $7.19
- Borrowing from a line of credit $5.81
Payday loan borrowers do not understand the relative costs of using payday loans.
- 57% of payday loan borrowers don’t know
And the use of payday loans in Canada more than doubled between 2009 and 2014.
- 1.9% in 2009
- 4.3% in 2014
Most payday loan borrowers are working age and live in urban area.
- 71% are 25-54 years old
- 83% live in an urban area
Payday loans are not restricted to low-income Canadians – even households earning average and above average incomes are using payday loans.
Borrowers household income:
- 7% earn over $120,000
- 13% earn over $80,000
The vast majority of loans (89%) were taken out to pay for necessary expenses or to avoid late charges on a bill.
Many are not prepared for an unexpected expense.
Only 24% of those surveyed would pay for a $500 unexpected expense using their savings, compared to 57% of Canadians as a whole.
Payday loan borrowers say they have access to fewer financial products than the average Canadian.
- 35% payday loan users indicated they had access to a credit card compared to 87% of Canadians generally.
- 12% payday loan users indicated they had access to a line of credit compared to 40% of Canadians generally.
The increasing use of payday loans in Canada is a risk for consumers.
Canadians are encouraged to:
- Explore their borrowing options and make sure they understand the costs of each option.
- Develop a savings fund to avoid having to turn to credit for a short-term cash short-fall.
- Seek professional advice when choosing products and having difficulty paying off a loan.
Stop the debt cycle!
Find out more at itpaystoknow.gc.ca
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