Are payday loans a bad solution to a much bigger problem? That’s what a new poll suggests.
A new survey from Harris Poll, commissioned by Hoyes, Michalos & Associates, a licensed insolvency trustee, found that 83 percent of Ontario payday loan borrowers had other debt at the time they took out fast loans no credit check. Also, nearly three-quarters (72 percent) of consumers attempted to take out another type of loan before applying for a payday loan.
Many payday loan borrowers say they have been turned away from conventional financial institutions. This means they have no other alternative but to turn to a payday loan business.
But is there something more to a borrower’s situation than lack of a bank account or access to conventional credit products?
The report discovered that the average non-mortgage debt for survey respondents was $13,207. Moreover, close to half (48 percent) of payday loan customers concurred that they sought out a short-term loan because of the amount of debt they have. Nearly half (46 percent) who took out a payday loan in the last 12 months said the funds helped them maintain their debt repayments.
“Short term and payday loans may appear to solve an immediate cash flow crisis, but they are adding to the overall debt burden of Canadians,” said Douglas Hoyes, a Licensed Insolvency Trustee with Hoyes, Michalos & Associates Inc., in a statement.
The survey did find that 45 percent of consumers saw their debt load go up after receiving a payday loan. Only 14 percent noted that their debts actually decreased.
“In other words, debt is the underlying problem. Borrowers are taking out high interest payday loans to assist with making their other, presumably lower interest, debt repayments” said Ted Michalos, a Licensed Insolvency Trustee, in a news release. “Rather than solving the problem, payday loans are making their financial situation permanently worse.”
Ultimately for many Ontario consumers, a payday loan was their “last resort.” Sixty percent of respondents who received a payday loan in the last 12 months agreed that a payday loan was a last resort after looking at all of their available options. The researchers say this dispels the notion that consumers take out a payday loan because they don’t have access to a bank.
So, why do consumers take out payday loans? Here’s a telling statistic: 23 percent of payday loan users stated that they maxed out their credit cards so they needed to seek out a short-term loan.
“Payday loan users are borrowing from payday loan lenders not because they can’t access any other credit, but because they have exhausted all other options,” added Hoyes.
The Ontario government is seeking public input about new payday loan regulations Queen’s Park is looking to implement. It would rein in interest rates, reform the business model the payday loan industry currently operates and change the way the principal amount is repaid.
The Harris Poll study was conducted with 675 Ontario residents 18 and old between April 14 and April 26.