‘Bad Credit OK’: How Payday Loan Companies Target Vulnerable Borrowers With Mobile Apps

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Payday loan companies increasingly offer mobile apps and easy online access, leaving borrowers vulnerable with no barriers between them and high interest rates

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Payday loan companies are increasingly offering mobile apps and easy online access, leaving borrowers vulnerable with no barriers between them and high interest rates.

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“Borrow $ 100 to $ 1,000 fast,” says the mobile app, Easy Cash Advance-Canada, which promises to connect you with over 50 different lenders. “Easy form in 2 minutes. Instant results. Cash transferred directly to your bank. Bad credit OK.

Previously, for a much needed quick loan, you had to go to a local payday loan store that was open late and on weekends. Nowadays, you can borrow money from your phone or computer while sitting at your desk in the morning, and you might have the money in your bank account at lunchtime.

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“Online is literally instant cash,” says Rebecca Sudano, vice president of BDO Canada Limited. “Obviously, it’s practical. But what is that for ? What are the ramifications of convenience? Watch the convenience of driving fast food. We have obesity. Watch the convenience of buying now and paying later. You have more people in debt.

“My concern is that we are creating a society where you can have whatever you want now and worry about the consequences later. “

Many payday loan operators, including Money Mart and Cash Store, have mobile-friendly sites with online application forms. The app, Fast Cash Loans in Canada, says it offers “instant approval.”

Although rules vary from province to province when it comes to borrowing limits, people can expect to pay up to 25% interest when they borrow money from companies. payday loan, even if they pay off the loan in a few days.

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Zippy Cash, for example, informs you on the first page of your online application that if you live in Alberta, it will cost you $ 23 for every $ 100 borrowed; thus a $ 300 payday loan for 14 days will cost you $ 69 (or an annual rate of 600%).

You are asked to fill in your employer’s contact details as well as your banking information. Same day approvals and money is deposited directly into your account.

“We shouldn’t make it easier for people to borrow money at high interest rates,” says Jeffrey Schwartz, Managing Director of Consolidated Credit Counseling Services of Canada, Inc. “People are just now. just a few clicks from the debt zone. “

Payday loan operators offer short-term loans or relatively small payday advances. People tend to borrow $ 1,500 or less for up to 62 days and the money is advanced in exchange for a post-dated check or other form of pre-authorized payment.

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“Interest is killing you,” said Lucy, who asked that her name not be released.

The 51-year-old Toronto resident receives disability support benefits and has secured payday loans online and in stores to help her cope with unexpected events. She took out a $ 1,000 payday loan this year to cover her son’s cancer medicine and orthodontic work. She had to pay back $ 1,200.

“After you pay them, you have to top up again. When you pay them, you have no more money for yourself, to pay your rent, to pay your bills. Basically, they suck you in.

According to Statistics Canada, nearly 3% of Canadian families in 2005 reported having obtained a payday loan in the past three years. On average, Canadians borrow about $ 300 for a two-week term. There are about 1,350 payday loan stores in Canada and the industry is worth about $ 2 billion a year.

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A large portion of payday loan borrowers tend to be from young families (between the ages of 15 and 24). Some users prefer convenience; those with bad credit or who have previously filed for bankruptcy may not be able to use less expensive means like a credit card, lines of credit or overdraft protection, according to a 2007 report by Statistics Canada.

“We’re caught in the spiral,” says Schwartz. “We need the loan to continue, so we get another loan and we pay off the first loan. [Technology] just makes it easier to go down that road.

Financial experts encourage people to create a budget, write down their income and expenses, and see where they can save for additional cash flow.

“Don’t prepare for failure. Create a budget, understand when your money is coming in and when your money needs to be out, ”he says. “Live within your means. “

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In-depth reporting on The Logic’s innovation economy, presented in partnership with the Financial Post.

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