According to a recent report, British Columbians are among the largest users of payday loans in Canada, with the number of people having more than 15 payday loans skyrocketing by 604% between 2012 and 2014.
A Vancity report issued Thursday examining the short-term gain and long-term pain of payday loans found that over 5.5% of people in B.C. use the loans, compared with 5.4% in Alberta and Saskatchewan, 3.9% in Manitoba, and 4% in Ontario.
“A payday loan is a small dollar, short-term loan that borrowers commit to paying back when they receive their next paycheque, usually within 14 days,” says Vancity. “Since many borrowers are unable to pay back the full amount of the loan in such a short period of time, many individuals resort to taking out additional loans to pay back the initial loan. Payday loans therefore often lead borrowers into a cycle of debt, from which it can be difficult to escape.”
The industry in B.C. is so strong that between 2012 and 2014, the number of dollars lent grew from $318 million to $385 million, and the number of people with 15 payday loans or more increased by a whopping 604%. The total number of people using payday loans also grew by 58%.
The top three reasons why British Columbia use payday loans are to access emergency money to pay for necessities, to cover unexpected expenses, and to avoid late charges on bills. Some 21% of people say they use them because they have “no alternative.”
But it doesn’t appear to be a ‘one-time-thing’ for many; 67% of payday loan users in the Lower Mainland and Greater Victoria borrow several times a year. 35% of them took out a payday loan once a month or more.
According to payday loan regulation in B.C., borrowers can take out a loan as large as $1,500 that is within 50% of their net pay. But the loans come with high fees and interest rates. For example, borrowing $100 for two weeks incurs a $23 fee, which is equivalent to about a 600% annual interest rate.
Vancity expects the growth in payday loans in B.C. is due to the province having one of the highest rates of poverty in Canada, with one in 10 British Columbians living in poverty.