Quick loans at interest rates around 30% are becoming more and more popular. Nearly half of borrowers take several per year.
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Despite their high interest rates and fees, quick loans – offered by the Fairstones, Easy Financials and Simple Credits of the world – are quickly gaining popularity among people who are financially strapped.
“For two years, we have really seen an increase in quick loans. We see it and we feel it in our offices. There are more and more,” says Sophie Desautels, first senior director and licensed insolvency trustee at Raymond Chabot.
“This week, for example, we had someone who had between 35 and 40 quick loans. It was mind-blowing! This is an extreme example, but it is possible. They were all small loans like $500 or $1000,” she says.
The majority of quick loans are worth between $250 and $1250, but some companies will make loans of $5000 or more. The advertising is known and effective: easy and quick application, deposit of funds into your bank account the same day, etc.
But the interest rates and other fees are exorbitant. The interest rate displayed may be 30%, but the actual rate you will pay can reach more than 200% including membership and insurance fees, among others, according to the Consumer Protection Office.
Multiple loans
“What we see more and more in our offices are people in financial difficulties who have dealt with fast lenders, but who don’t just have one. It quickly snowballs when they take several, and that’s when it doesn’t work at all,” says Sophie Desautels.
-According to a study carried out last year by the Toronto firm Hoyes, Michalos & Associés, about 45% of quick loan borrowers take out several such loans per year. The average user contracts two to three per year. Even more alarming, 15% of fast loan borrowers have taken more than 10 loans in the last three years in the country.
“Forty percent of all consumer insolvencies included quick loans in 2023, a sharp increase from just 12% in 2011,” says Douglas Hoyes.
According to the study, the average insolvent borrower owed $8,157 in fast loans. Why do they use this type of loans?
“Borrowers turn to fast loans as a last resort when they face financial emergencies or struggle to make ends meet between paychecks,” says Douglas Hoyes.
According to the insolvency firm, 45% of them use a quick loan to pay for unexpected but necessary expenses, such as a car repair. Forty-one percent take one out to pay for living expenses, such as an electric bill or a mortgage or rent payment. The rest turn to fast loans to avoid late fees on upcoming bill payments.
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