BONOKOSKI: New credit card or payday loan not the answer

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The latest MNP Consumer Debt Index has red flags flying everywhere with 15% of Canadians reduced to thinking that applying for another credit card is the ticket to making ends meet.

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Nearly 20% think of payday loans.

This paints a pretty bleak picture.

“Buy-it-now, pay-later options, payday loans and credit cards are particularly appealing to people with tight finances, but payment terms, fees and interest charges are largely wrong. including,” said Grant Bazian, president of MNP Ltd., the nation’s largest personal insolvency firm.

He warns Canadians against the lure of borrowing more through fast credit options and buy-it-now-pay-later (BNPL) offers increasingly touted by online retailers.

The story of the debt index band is frightening, even more so amid the economic uncertainty created by the lingering pandemic.

Nearly six in 10 Canadians (58%) are at least somewhat likely to borrow more before the end of this year, including nearly four in 10 (37%) who say they are likely to use a credit card that already has a balance.

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“Buy now, pay later” options, which have exploded alongside the surge in online shopping and the financial instability caused by the pandemic, will be the method of payment for one in five Canadians this fall.

Additionally, one in ten is considering a personal loan.

Scott Gilmore of Macleans magazine was mistakenly targeted by a loan company for a debt owed by a person of the same name.

“It was strange to find a doppelganger and look at his life like that, in a voyeuristic way, but what amazed me was that I realized he was paying around 400% on that loan and that he clearly couldn’t afford it,” Gilmore wrote. “What I found out about the state of the payday loan industry in Canada was breathtaking.”

This has led Stan Keyes, president of the Canadian Payday Lenders Association, to weigh in to say that his licensed payday lenders “do not deserve the vilification they often suffer.”

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“No lender wants a borrower to default on the loan,” Keyes said. “And the law, the regulations in Ontario and all the other provinces, are very clear: an approved lender cannot extend the loan for a fee.”

Across the country, however, payday loan outfits with their showy, unmistakable decor—often with two or three existing in the same neighborhood, usually in the poorest blocks—herald the ease and convenience of borrowing. a few hundred dollars to get their clients through all week.

But it’s the repayment part that can make these loans tricky. In Manitoba and Saskatchewan, it will cost you $17 for every $100 borrowed. The fee is $15 in Ontario and $15 in British Columbia and Alberta.

There are no bargains to be found.

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Then there are the online lenders with their painless pitches like borrowing $3,000 and “getting your no-obligation loan pre-approved in just three minutes.” A question about your loan? Chat online with our team of product specialists!

Sounds like the answer to the desperate – it’s not.

But Canadians, according to Bazian, “also know that the low-interest sauce has to come to an end at some point.”

“Debt can be a useful tool,” Bazian said. “But every time you borrow, you take a financial risk. Interest rate hikes, unexpected loss of income, emergency expenses, or life-altering events are all potential outcomes that can make paying off debt nearly impossible.

Too many Canadians, however, are already too involved.

Nearly half said they were $200 away from insolvency.

Again, not a pretty picture.

markbonokoski@gmail.com