83% of payday loan borrowers in Ontario had other debt at the time they took out a payday loan
72% tried another loan source prior to taking out a payday loan
KITCHENER, ON, May 24, 2016 /CNW/ - An overwhelming 83% of payday loan borrowers in Ontario had other outstanding loans at the time of their last payday loan, according to a study of Ontario residents commissioned by Hoyes Michalos, conducted by Harris Poll.
"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," says Douglas Hoyes, a Licensed Insolvency Trustee with Hoyes, Michalos & Associates Inc.
According to the study, among residents of Ontario:
- 83% of payday loan users had other outstanding loans at the time of their last payday loan;
- 48% of payday loan users agree they seek a short term/payday loan due to the amount of debt they carry;
- 46% of those who used a payday loan in the last 12 months agree that a short term/payday loan made it easier to keep up with debt repayments.
- The average non-mortgage debt owing at the time they took out a payday loan was $13,207.
- More than half of all users (55%) take out more than one loan in 12 months, and of those, 45% say their debt load increased post payday loan, with only 14% saying their debt load 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" says Ted Michalos, a Licensed Insolvency Trustee with Hoyes, Michalos & Associates Inc. "Rather than solving the problem, payday loans are making their financial situation permanently worse."
This study also debunks the myth that the typical payday loan borrower turns to payday loans because they do not have access to traditional lending sources. Almost three in four (72%) payday loan users explored another lending sources prior to taking out a payday loan, while 60% of those who took out a payday loan in the last 12 months agreed that a payday/short term loan was a last resort after exhausting all options. In fact, 23% of users said they had maxed out their credit cards as a reason for seeking a payday 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" says Hoyes.
No simple solution
The Ontario government is currently considering amendments to payday loan legislation to reduce the cost of borrowing, but that does not solve the underlying "high debt" problem.
"Most payday loan companies advertise the cost of borrowing as $21 for $100, giving the impression that the interest rate is 21%. This type of advertising hides the true interest rate, which if you are borrowing every two weeks is 546%, and that makes it difficult for the consumer to see the true cost of borrowing" says Douglas Hoyes.
Instead, requiring payday loan companies to advertise the annual interest rate may help raise awareness of the real cost of payday loans. Another recommendation would be to require payday loans to be reported to the credit bureaus.
"One simple change would be to require all short term lenders to report all loans to the credit bureaus," says Ted Michalos. "That may lead to some borrowers being rejected for payday loans, which may force them to address their underlying debt problems sooner. For other debtors the reporting of successfully paid off loans may increase their credit score, and allow them to qualify for more affordable loans at traditional lenders".
More information from the study and recommendations are at http://www.hoyes.com/blog/payday-loans-a-symptom-of-a-bigger-problem-study/
Harris Poll conducted an online study on behalf of Hoyes, Michalos & Associates, with n=675 Ontario residents aged 18 years and older, from April 14th to April 26th, 2016. The survey was conducted in English.
Hoyes, Michalos & Associates Inc., Licensed Insolvency Trustees, is a consumer proposal and bankruptcy firm with offices throughout Ontario, helping people in financial difficulty.
SOURCE Hoyes, Michalos & Associates Inc.
Image with caption: "Payday Loans (CNW Group/Hoyes, Michalos & Associates Inc.)". Image available at: http://photos.newswire.ca/images/download/20160524_C4963_PHOTO_EN_695863.jpg
Image with caption: "Hoyes Michalos payday loan study infogragphic (CNW Group/Hoyes, Michalos & Associates Inc.)". Image available at: http://photos.newswire.ca/images/download/20160524_C4963_PHOTO_EN_695870.jpg
Image with caption: "Hoyes, Michalos & Associates Inc. (CNW Group/Hoyes, Michalos & Associates Inc.)". Image available at: http://photos.newswire.ca/images/download/20160524_C4963_PHOTO_EN_695892.jpg
Audio with caption: "Ted Michalos - payday loans make situation worse Audio clip - 7 seconds". Audio available at: http://stream1.newswire.ca/media/2016/05/24/20160524_C4963_AUDIO_EN_695864.mp3
Audio with caption: "Ted Michalos - borrowers taking payday loans to make other debt repayments Audio clip - 8 seconds". Audio available at: http://stream1.newswire.ca/media/2016/05/24/20160524_C4963_AUDIO_EN_695865.mp3
Audio with caption: "Ted Michalos - require lenders to report all loans to credit bureau Audio Clip - 26 seconds". Audio available at: http://stream1.newswire.ca/media/2016/05/24/20160524_C4963_AUDIO_EN_695866.mp3
Audio with caption: "Doug Hoyes - true cost of payday loans Audio Clip - 21 seconds". Audio available at: http://stream1.newswire.ca/media/2016/05/24/20160524_C4963_AUDIO_EN_695867.mp3
Audio with caption: "Doug Hoyes - payday loan borrowers have exhausted all other options Audio Clip - 8 seconds". Audio available at: http://stream1.newswire.ca/media/2016/05/24/20160524_C4963_AUDIO_EN_695868.mp3
Audio with caption: "Doug Hoyes - payday loans adding to the debt burden of Canadians Audio Clip - 8 seconds". Audio available at: http://stream1.newswire.ca/media/2016/05/24/20160524_C4963_AUDIO_EN_695869.mp3
For further information: Hoyes, Michalos & Associates Inc., Douglas Hoyes, CA, CPA, CIRP, CBV, Licensed Insolvency Trustee, Email: [email protected], Twitter @doughoyes, Phone: 1-866-747-0660 or 310-PLAN; Ted Michalos, CA, CPA, Licensed Insolvency Trustee, E-mail: [email protected], Phone: 1-866-747-0660 or 310-PLAN