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You have a bill to pay. Payday is still a few days away. You have no cash available and no one to loan a few bucks from.

This is the situation tens of thousands of Canadians face every day. It’s also the target market that those ubiquitous Payday Loans stores that beckon the masses into their evil lairs. These “stores” make vast amounts of money from outrageously high interest rates. The fact is, taking out a payday loan is one of the worst financial decisions you can ever make. Victims are often exploited because they just don’t know any different, or simply find themselves in a desperate situation, and therefore ripe for being exploited by predatory Payday Loan providers.

Here are 8 reasons you should never even consider a payday loan:

Reason #1 – The Interest Rates

Avoid-Payday-LoansPayday Loans interest rates can only be described as “extortionately high” – yes we realize that’s not a word, but they’re so high, we had to make up new words to describe them. Interest rates can be in excess of 1,000% per annum for an amount as little as $150. Of course, payday loans are intended to be paid in full in two weeks or less, nevertheless the rates and fees you will pay in this short time are excessive to say the least. In one study that included 12 million Americans who took out a payday loan last year; the average loan amount was $375, yet the total repayment amount including interest was $520!

Reason #2 – The Bad Habits

Most feel that they will only get this payday loan once. But there’s a reason most of the payday loan lenders will offer you your first loan for free. Because they know you will use them again, and the very nature of the product is designed to make you reliant on their service. What’s worse is what these loans are often used for. According to the Centre for Responsible Landing and the same study quoted earlier: “around three quarters of loans are taken out to pay off other loans.” Sound financial advice would suggest that if you’re having trouble paying off one loan, taking out another loan to pay off the first loan, is not the best idea, in fact, it’s possibly the worst idea ever. You end up paying interest, on interest, on interest. This often ends up in a trap to get you into a cycle of irresponsible borrowing that can be extremely difficult to get out of. Payday loans promote a culture of debt, and seek to keep you in that cycle permanently.

Reason #3 – The Stacking Effect

Payday loans multiply out of control. Yes, they’re intended to be paid off after just a week or two. But paying the loan off even one day late can lead to enormous extra costs. The fact is that people who take out payday loans tend to find themselves in tight financial position to begin with, feeling like there is no way out, while that is simply not true. There are payday loan alternatives that can help you break this cycle, rather than get you stuck in it. Finding yourself in a payday loan cycle can add up quickly – within just a few weeks many find themselves owing many times the original sum of money borrowed in the first place.

Reason #4 – Your Credit Rating Takes A Hit

The sad reality is that many turn to payday loans because they don’t require good credit to get a loan. Your pay-cheque forms “collateral” for the money they’re loaning you. However, they still run a credit check regardless, and that check will have a negative impact on your credit score, and will be recorded permanently on your credit record. This is likely to prevent you from being able to get good credit in future, as this may be interpreted as “displaying unreliable credit behaviour”. This in itself will make it more difficult to break the payday loan cycle, and start building a good credit reputation. Next time your bank looks up your credit to give you a reasonable loan, that “Payday Loan” check, will certainly stand out on your record. This alone should be enough to terrify you away from a payday loan.

Pawn loans on the other hand do not carry any of these pit-falls. See how payday loans compare to pawn loans. Our interest rates are reasonable. We work with those getting pawn loans to pay their loans and not get stuck in a cycle of debt. There is no stacking effect, and we never run credit checks. If you need cash now, and you have something of value, anything of value, you can get cash to help you through this difficult time today.

In our next article, we will discuss another 4 reasons you should never consider a payday loan.