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Credit/Debt

Have you ever found yourself so cash strapped that you have to find a way to access money you know is coming, but you haven't received yet? Well, you are not alone. Many people have been flocking to payday loan companies. In fact, there are 700 payday loan operators just in Ontario. With payday loans you can usually borrow up to 30% of your pay cheque for a two-week period of time.

Payday loans are a quick way to raise money you need immediately. But, there are many other, less expensive ways to do this. Interest rates on payday loans are high and there are also many fees and charges. If you make a payment late or continue the loan for longer than the initial two-week period, charges and high interest can cost a lot of money.

Earlier this month the Payday Loans Act, 2008 was passed in Ontario to regulate the payday loan industry. Ontario is the sixth province to regulate payday loan operators.

Even if the industry is regulated in your province, be sure to consider these key issues before you sign up for a payday loan:

• Before taking a payday loan, consider other cheaper options such as overdraft protection on a bank account, an advance on a credit card or a personal line of credit with a financial institution.
• There are a lot of costs involved in payday loans including high interest rates. Some of these costs can be hard to understand. Ask what additional costs may be charged if you don't pay the loan off on time. The new Ontario Act requires that all charges you are required to pay are included in the total cost of borrowing.
• Don't borrow more than you need. If you must borrow, only borrow an amount that you are 100% sure you can repay on the due date. Don't agree to have your employer sign over all of your wages to the payday lender if you are unable to repay what you owe. In many provinces, this is illegal.
• Get a copy of the loan agreement and take it home, read and understand it before signing. Don't feel pressured into signing before you read and understand the loan agreement. Under the new Ontario Act, you now have a cooling off period when you can change your mind. Don't use your personal property, such as your car, as a guarantee for a loan.
• Payday lenders also operate on the Internet. Because Internet lenders can't actually see your identification and income documents, they will often ask for more personal information than is normally needed. Where possible, avoid using Internet payday lenders.

The best strategy to avoid short-term loans is to build an emergency fund. Put aside 10% of your income each month so that you can easily access it in the case of an emergency. Work with your financial advisor to set up a budget so that you don't overextend yourself.

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