Payday Loans: A Vicious Cycle

First things first – to understand why payday loans lead to a vicious cycle of debt, you need to understand what a payday loan is. A payday loan is typically a short-term advance given out by the various institutions (not banks), with the intention of receiving the money back on your next payday. These differ from traditional loans because unlike these, which take much longer to be agreed upon and executed, payday loans are arranged over a couple of days. While this seems like a great “quick-fix” approach to handling your financial woes, be weary as this could actually fuel your debt.

The main problem with payday lending is the astronomically high interest rate that accompany it. As it stands right now in Ontario, two-week payday loans have a maximum fee of $21 per $100 borrowed. Oftentimes, people are unable to pay their loans back within the short time period, so they turn to other payday loan institutions to aid them. This detrimental pattern continues and in many cases, eventually spirals into a mountain of debt.

This is a very large issue. In fact, in certain areas of Ontario, city councillors are starting introduce motions to shut payday stores down and/or prevent them opening in the future. Quite recently, Ottawa’s city councillor, Mathieu Fleury, stated that he wants to crack down on these payday establishments as soon as possible. On April 13, CBC News wrote about this, claiming:

“Fleury says he will be asking the provincial government to amend the Municipal Act so that the city can control the zoning of payday lenders in an effort to limit their location and number”.

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As Licensed Insolvency Trustees, we have extensive experience in addressing financial challenges created by payday loans and many other questions you may have.

Feel free to email us at, call us at 416 736 4357 (HELP), or fill out the contact form on this website, to book a free, no obligation consultation with one of our debt solutions’ experts. We look forward to assisting.