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Cash Store Loans & Why to Avoid Them

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Cash Store Loans Often Cause More Problems Than They Solve

Getting a Cash Store loan can seem like a good idea at first. However, much like other payday loans, these loans can result in serious trouble. The reason why is that Cash Store loans, and all payday loans, charge significant interest rates. They also expect to have the money that was borrow repaid very quickly. If you take out a payday loan and aren’t able to pay it back in the standard two-week period, you could be on the hook for large penalties in addition to very high-interest rates.

The Cash Store is an Edmonton-based payday lender that faced a significant cash flow crunch in 2014 and ended up filing for bankruptcy protection. The Cash Store stated that its financial difficulties were a result of government scrutiny, changing regulations, class action lawsuits, and disputes with some of its lenders. Payday lenders often have to deal with significant government regulation as these lenders often attempt to charge very high-interest rates and, therefore, governments often place restrictions on what they can charge.

In 2016, a class action legal settlement was reached and many people who took payday loans from the Cash Store or Instaloans in Ontario after September 1, 2011, can make a claim to recover some of the fees and interest they were charged. This is the result of an Ontario Superior Court of Justice’s decision to approve a $10M class action settlement.

However, dealing with a questionable payday lender isn’t the only concern when taking out a payday loan. In general, these loans are not a good idea no matter which organization you turn to and borrow money.

The Problem with Payday Loans like the Cash Store

Payday lenders are very common. Depending on the area, it’s not strange to see one on every corner. Many people use them for prepaid debit and credit cards, cheque cashing services, money transfers, and short-term loans. In general, the biggest potential issue comes with short-term loans, which are often called “payday loans.”

These loans are often designed to “get people to payday,” meaning they are there to help you afford your bills and expenses until you get paid by your employer. However, there are many potential issues with this service.

One of the most important ones is the fees and interest rates charged by companies like the Cash Store and other payday lenders.

In Ontario, payday lenders are capped at how much interest they can charge. As of January 1, 2018, the maximum cost of borrowing a payday loan is $15 for every $100 that you borrow.

At first, this does not seem like a large amount. However, when you compare this amount to other forms of credit, it becomes obvious how expensive payday loans can be.

According to the Government of Ontario, borrowing $300 from a payday lender for two weeks will cost $45 in fees. However, borrowing the same amount on a credit card with a 23% interest rate will cost $6.15. This truly shows the difference in cost.

This example highlights how expensive payday loans often are. Credit card providers tend to charge very high-interest rates, but these rates seem small compared to what payday lenders charge.

Many credit card providers charge more than 20% interest annually. However, payday lenders are able to charge 15% interest for a two-week period. This means that over the course of a year, that adds up to 390% interest!

Payday lenders like the Cash Store will say that their loans are not designed to be kept for an entire year, and that is technically true. However, this point is another reason why payday loans are so dangerous.

When someone wants a short-term loan and they head to a lender like the Cash Store, they usually write a post-dated cheque or arrange for a preauthorized debit from their bank account for the amount of the loan plus the fees. This cheque or preauthorized debit is usually dated two weeks from the date of the loan. The loan is designed to be repaid after the person gets paid.

However, someone who needs a short-term loan is someone who is likely living paycheque-to-paycheque and/or someone who does not have money saved for emergencies or unexpected costs. Therefore, a lot of people who get a payday loan find themselves in trouble even if they are able to pay the loan back in two weeks. That’s because they tend to find themselves short of money again once they’ve paid back the loan and the fees associated with the loan. This means they will likely end up getting a payday loan from the same lender again in the future, or search for another cash store or payday loan provider. The result is a cycle that is very difficult to get out of.

Dealing with Payday Loan Problems Like Cash Store Loans

When you get a payday loan from a company like the Cash Store, you are often asked to provide identification, proof of income, and copies of recent bank statements. However, you can usually get a loan without a credit check. This is a big reason why people often turn to payday loans. Not only can someone with poor credit often get one of these loans but, since no credit check is required, it’s often very quick to get a loan as well.

However, this convenience and speed can come at a significant cost. While the fees associated with a single two-week loan from the Cash Store or another payday lender may not be so bad, the true issue comes when people have to take out multiple loans (and pay multiple fees) to stay afloat.

Here are a few options other than visiting the Cash Store and getting a payday loan that you may wish to consider:

  • Talk to your creditors
    • Many people who end up getting payday loans do so because they want to cover their bills and expenses until they get paid. However, if you have a history of paying your bills on time and you run into a cash flow issue that makes it difficult to do so, talk to your creditors before you miss a payment. They may be willing to work with you so you don’t have to get a payday loan.
  • Use a credit card or other type of loan
    • In general, adding on additional debt isn’t a good idea. However, if you’re short on money and can’t pay your bills when they become due, using a credit card or another type of loan can be preferable to getting a payday loan. This is because these loans usually charge much lower interest.
    • However, before you borrow any money, it’s important to have a plan to pay it back. If you can’t figure out how you’re going to repay the loan (whether it be a payday loan from a cash store or any other type of loan), then it may not be a good idea to borrow the money.
  • Work extra hours
  • Ask friends or family
    • It’s always difficult to ask friends or family members for financial help. However, this could be an option if you need a small amount of money for a short time. It’s critical, however, that you have a plan to pay this money back when your friend or a family member needs it back, as financial issues can lead to serious relationship problems.
  • Cut from somewhere else
    • This may not work if you need money quickly, but if you find yourself regularly struggling to pay bills and make ends meet, you should look at your budget and see if you can make any cuts. If you’re able to reduce your monthly spending in some areas, you’ll have more money available to pay your most important costs. Then you won’t need to head to a cash store to get a payday loan.
  • Speak with a Licensed Insolvency Trustee
    • Licensed Insolvency Trustees are individuals who have received specific training and who are licensed by the Office of the Superintendent of Bankruptcy to review people’s financial situations, provide details on the available debt-relief options, and administer insolvency processes.
    • Typically, the need to head to a cash store for a payday loan is a symptom of a larger problem in which a person is unable to meet their financial commitments. People in these situations often have large amounts of other debt and have reached a point where they can’t pay their bills as they become due.
    • If you are in such a situation, speaking with a Licensed Insolvency Trustee can be a good idea. They will review your situation and provide you with details on the available options. Trustees will give you details on all options, not just the ones they are able to administrate. It is then your decision as to how you will proceed.
    • Most trustees offer a free consultation.

If you are having difficulty paying your bills, it may be tempting to head to a cash store and get a short-term loan. However, these short-term loans often lead to long-term problems. Before you get a payday loan, consider all the alternatives.

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