Q. Several months ago, I lost my job. My wife and I must have visited more than four banking institutions. They all turned us down for a temporary loan. Although my wife continues to work, her income is insufficient to qualify. Last week, she used a “payday loan” store to temporarily meet our short-term obligations. Why are there not other alternatives for families that are hurt by the recession? — Corey and Jessica
A. Contrary to belief, banks do not provide loans based on need but the ability of the individual to repay. In these tumultuous times, financial institutions must be prudent with lending. We have seen how lax lending practices have devastated the U.S. economy. Definitely not a practice Canadians want to copy.
Payday loans are lenders of last resort. These loans should not even be in your list of lenders that money can be obtained. Unfortunately, more than 2 million Canadians disagree and use the services of payday loans. It’s a travesty that there are not alternatives that educate users to seek and obtain less costly financing.
A payday loan is a small principal, unsecured loan made to a borrower with a guarantee of repayment in a short period of time, such as ten days or two weeks. It is attractive to some because no credit checks are performed, and the amount borrowed is generally small in nature, approximately $300.
Recent provincial legislations were passed to toughen the rules for payday loan providers, introduce a cooling off period and limit the fees charged. For example, in Ontario, maximum fee charged on $100 is $21.
Once you start on this cycle of borrowing, it is very difficult to get off.
Exhaust these methods to obtain your loans:
• Refinance mortgage — some banks offer deferral of mortgage payments
• Line of credit
• Second mortgage
• Consolidate loans
• Other financial institutions beside banks
• Family, friends, neighbours (swallow some pride)
• Liquidate assets such as furnishings and stocks, etc.
– Henry Choo Chong, CGA, can be reached at email@example.com and 416-485-5225.