The scourge of the pandemic caused global economic disruptions. Even a developed country like Canada was not spared from the impact. Amidst the crisis, payday loans remained a staple for many borrowers. With that in mind, we will take a look at the payday loan industry in Alberta.
Taken from pexels.com
Payday Loans in Alberta
In essence, payday loans are the amount lent based on the borrower’s income. From the name itself, these are instant loans repaid with high charges on the next payday. Payday loans bear high interest but do not require collateral. As such, it is pretty surprising to see it is not appealing to some people despite the relief it provides.
In Canada, provinces implement different regulations on payday loans. For example, Alberta imposes lower interest rates compared to other provinces. Consumer or borrower protection aims to restrict illegal or unauthorized lenders. But, controversies persist, leading to decreased demand in recent years.
From 2017 to 2019, the number of payday loan borrowers decreased from 96,076 to 91,879. In 2020, it plummeted to 73,080 despite the economic downturn. Installment loans were seen as a competitor as more Canadians shifted to it. As such, the total value of payday loans in Alberta shrank by 40%.
Taken from Alberta Government
But, little did people know that more problems were associated with installment loans. For instance, a Canadian has to pay $5,850 for a couch. They can purchase it through an installment loan labeled as a personal loan. Hence, the annual interest accumulates to 28.99%.
In nature, payday loans are installment loans. Yet, the maximum amount you can borrow is only $1,500. In comparison, installment loans allow you to get a lump sum of money upfront. But, you can pay it by installments in fixed amounts.
For payday loans, the financial impact only covers a short period. Once you pay the principal and fees, you are free. You are forced to spend it wisely since there is a maximum amount you can borrow. The amount to be paid is definite and smaller in reality than installment loans. In this context, you can think of going for Mogo payday loans Canada, which can be immensely helpful for individuals, shops, stores and miscellaneous other small businesses that sometimes run short of cash, and want immediate finance to get out of the monetary woe, irrespective of the high interest rates.
Meanwhile, default payments in payday loans have decreased in recent years. It can be due to the drop in payday loans from $290 million to $220 million. Yet, if we compute the percentage of default payments to total loans, it moved from 10% to 8.8%. We already included other charges like the additional interests and penalties.
Given the data, we can say that financial literacy in Alberta has improved. But what is more apparent is that borrowers’ protection has paid off. With lower interest rates than others, repayments are easier. More often than not, it appears predatory, but it can be a lifesaver in reality.
Taken from Alberta Government
Payday Loans: A Lifesaver During the Pandemic
During the pandemic, a recession took place. Businesses shut down, and the labor market became uncertain. Without bank loans, payday loans became a go-to option despite their predatory tendencies.
Below are some ways payday loans became a lifesaver for many residents in Alberta:
Payday Loans and the Unemployment Rate
Even before the pandemic, unemployment in Alberta was a bit higher than the average in Canada. But like the rest of the provinces, it spiked up by 46%, reaching 10.2 at the end of the year. The interest rates in banks were almost zero, but loan approvals remained strict. Plus, it would take days or weeks before claiming it.
In contrast, payday lenders entertain borrowers, employed or not. Once you present the complete documents and give access to your bank account, you can borrow. The problem is that the principal amount depends on your income. As such, the amount you can borrow can be smaller than expected.
Taken from Newfoundland and Labrador Statistics
Payday Loans for Other Expenses
Payday loans do not have a minimum income requirement. As mentioned, no matter how small you earn, you can borrow even if you are unemployed. In recent data, the average annual income in Canada is $54,630. If we divide it into 12 months, it will amount to $4,553.
Provinces have different costs of living. For example, Alberta’s average cost of living is $4,115. In Calgary, it is higher at $4,240, but in Edmonton, it is lower at $3,989. These figures only account for food, school, transportation, and housing expenses. The values presented may still be lower than expected.
Other sources estimate miscellaneous expenses in Alberta at $155. They include laundry, recreational, and internet expenses. Given this, the value would range from $4,144 to $4,395. But the problem is the uncertain market and the potential post-pandemic inflation.
Taken from Nationwide Visas and Wowa
Taken from Wowa
Taken from Wowa
In 2020, hospitalizations surged amidst the pandemic. Many borrowers chose payday loans even others shifted to installment loans. During emergency expenses, payday loans are reliable. In 2020, the majority appeared to be lower-income borrowers.
Payday loans approval can be as quick as an hour. Lenders can deliberate if you meet their criteria in five minutes. Hence, you do not have to wait for a few days or weeks if you have urgent expenses. These may include hospitalizations and repair of appliances and other equipment.
Taken from Alberta Government
Convenience
Aside from quick loan approval, you can borrow money online fast from payday lenders. In five minutes, an officer can deliberate whether you meet their criteria or not. In the new normal, health and safety are our top priorities. Payday loans let borrowers stay at home and avoid queuing up in banks, and get exposed to many people,
Moreso, payday loan charges are more definite than installment loans. In general, payday loans bear 17% interest. Yet, some provinces and companies charge lower interest rates at only 15%. As long as you can repay on time, you will not have any problem at all.
In Alberta, credit charges in 2017-2019 amounted to $30 million, including interest rates. If you compare it to the total value of $298 million, charges account for 11% only. Hence, payday loan charges remain acceptable. Of course, you will incur higher interests and other fees if you do not pay on time.
Taken from Alberta Government
Payday loans lost their appeal to other borrowers, given their slight downtrend. But, it remains a staple for many unemployed and low-income households. It proves to be efficient and convenient for those paying their loans religiously. With the still-recovering labor market, it remains a lifesaver for many Canadians.
