The Latest Short-Term Loan “Deals”

OK, there should really be a sarcasm font on this. When I say “best deals” it’s actually the so-called best of horrible ways to borrow.

However, millions of Canadians look for short-term money every month. And they’re not just people who are down and out.

I filed my income tax return last Monday. I’ll have the refund cheque in my hands by early next week. That’s incredibly fast, yet millions of people can’t wait even a week (with direct deposit)? H&R tax refund advance rates are 15% on the first $300 and 5% on the rest. So on a $2,000 refund, they’re taking $130 to save you a week of waiting. That’s nuts and translates to an annualized interest rate of 338%.

They’re everywhere, but an Edmonton pawn shop is advertising a special on the radio: Only 25% if you redeem the item you pawned within two weeks. That’s supposed to be a deal? It’ll cost you $125 to get $500 for two weeks. That’s an annualized interest rate of 650%.

There’s a new website advertising nationally called lenddirect. The ads show a lot of smiling people that they can now get a convenient loan with just a few clicks online. The tiny tiny print shows the interest rate of 46.93%. On a $10,000 loan over five years, that’s $16,100 interest.

Not to be outdone, Money Mart has now expanded from the payday lending business model to also offer installment loans up to five years and $15,000. Their ads and website heavily harp on the fact that they have no hidden fees. Well, that’s reassuring. But you need to dig a long way down their website links in order to find the interest rate: It’s 59.9%. On that same $10,000 installment loan, your five year payments would be $528 and borrowing $10,000 costs you $21,700 interest. Yes, borrow $10,000 – pay back almost $32,000!

Borrowing from any of the short-term lenders really does make things worse – much worse, and not better. Sure, today you have a few bucks to relieve some financial stress, but it comes at a staggering price of a ton more debt and stress down the road. There are always alternatives, such as an overdraft, take a cash advance from your credit card, get an advance on your pay or holiday pay, borrow from a family member, or just be late on the bill that you have to pay today.

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