fbpx Borrowing Money | People's Law School

You are here

Money & Debt

Your Questions About Coronavirus and Money Issues

Answers to common money and debt questions arising from the coronavirus pandemic.

“This pandemic has made everything come to a stop. Except for my bills of course. And money is tight now. With groceries, cleaning supplies, rent, and so many other pressures, it’s hard for me to prioritize what to pay first."

– Morgan, Vancouver

I’ve heard it’s possible to defer some bills?

Yes, in fact BC Hydro has gone a step further and is offering a COVID-19 relief fund for its customers. If you or your partner have lost your job or are unable to work due to COVID-19, you may be eligible for free credit on your hydro bill. Or you can ask to defer payments or access grants to help pay your hydro bills. 

Fortis BC is offering flexible payment options and waiving late payment fees for gas and electricity bills. And they won’t cut off anyone during the crisis.

ICBC customers can ask to defer monthly payments for up to 90 days with no penalty.

I may have to withdraw money on my credit card. What do I need to know?

Borrowing money from your credit card comes with fees and steep interest rates, upwards of 20% per year. Consider borrowing money from a friend or relative, or from a credit union or bank that offers lower interest rates. One option to consider is opening up a line of credit. We have resources on borrowing money and dealing with debt that might help as you consider your options. 

What about supports for students, and what about student loans?

The federal government has introduced an emergency student benefit. It provides between $1,250 and $2,000 every four weeks to those post-secondary students and recent graduates who can’t find work or are making less than $1,000 per month due to coronavirus. The benefit is available from May to August 2020. Students can also be eligible for benefits if they volunteer.

The federal government has also placed a six-month interest-free freeze on all Canada student loans, effective March 30. No payment will be required and interest won’t add up during this time. Students don’t need to apply for the repayment pause. The province similarly froze all BC student loan payments for six months, also effective March 30.

The government is also raising maximum amounts for student grants and loans.

As well, post-secondary students can access non-repayable emergency funds for living expenses. You can also access laptops to help you study remotely. Contact your school’s financial aid office to apply and find out how much money you can qualify for.

Is there relief to help low-income people?

New emergency measures are in place to help people on income or disability assistance and low-income seniors. Those on provincial assistance programs and not receiving employment insurance (EI) or the new Canada emergency response benefit will get extra money from the province. They’ll automatically receive a $300 supplement on their cheques in April, May and June.

As well, during the pandemic, the province will stop deducting employment insurance benefits from welfare payments.

As long as BC Transit and TransLink are waiving transit fares, the $52 bus pass supplement will be converted into a cash supplement. The amount will be automatically added to disability assistance cheques.

A one-time enhancement to the climate action tax credit will be paid in July 2020 for moderate to low-income families. An adult will receive up to $218, and a child up to $64. (This is five times more than the three other payments in 2020 under this tax credit.)

I can’t meet with my accountant or access my records, and I know I have to file my taxes soon. What can I do?

The federal government announced flexibility measures for taxpayers. This means you can file your taxes as late as June 1, and can pay any balance owing to the Canada Revenue Agency, without penalty, by August 31. 

You should still consider filing your taxes as early as you can if you expect a refund or want to make sure child benefits or other credits get properly calculated and applied. SimpleTax is an easy-to-use software for personal filers — no accountant needed!

Paying Taxes

This publication explains income tax and other types of taxes.Read more

Format: 
Wikibook
PDF
EPUB
Language: 
English

Payday Loans: Why to Consider Alternatives

Not only are payday loans a very expensive way to borrow money, there are other risks.

Our family was hit with unexpected bills, and we needed some extra money. I went to a payday lender, and was approved for a loan in minutes. They made it seem so easy. And then I learned how much I would be paying in interest. I was shocked. I decided to ask my parents for a loan instead.

– Allie, Surrey

You have rent coming due, extra bills piling up, and you’re strapped for cash. Taking out a payday loan can be a tempting short-term solution. However, your cost of borrowing is through the roof. And relying on payday loans can get you into deeper financial trouble. Thankfully, there are other options to borrow money in a pinch.

Five reasons to avoid payday loans.

We explain some alternatives to payday loans below. First, though: five reasons why a payday loan should be your last resort. 

1. A payday loan is expensive

Payday loans are small, short-term loans. The maximum amount that can be borrowed is $1,500 and usually, they have to be repaid within 14 to 28 days. 

They’re also seductively easy to get. Payday lenders don’t ask to see your credit report before lending to you. They just want to see proof you’ve got a source of income and your bank account details.

But you pay dearly for that quick access to cash. Most payday lenders charge much higher interest rates and fees than other lenders. 

Under the law in BC, the most a payday lender can charge you for a loan is 15% of the principal amount borrowed. This includes interest and any other fees. 

This might not sound like a lot. But it is a very expensive way to borrow money. If you take out a $300 payday loan, that 15% charge will be $45. This translates into a very high annual percentage rate of interest, particularly if the loan is for a short period of time. 

Time to repay $300 payday loan (+ $45 charge)

Equivalent annual percentage rate of interest

14 days

391%

28 days

196%

62 days

88%

2. When we say a payday loan is expensive, we mean really expensive

Let’s unpack this a little more. The annual percentage rate of interest tells you how much it costs to borrow for one year. That 14-day payday loan has a heart-stopping rate of 391%. In comparison, the rate on a typical bank credit card is around 20%.

Put another way, taking out a 14-day payday loan is roughly 20 times as expensive as using a credit card, and 50 times as expensive as borrowing from a line of credit.

Cost of borrowing $300 for 14 days

The costs shown in this example are based on the following:

  • The annual interest rate charged on borrowing from a line of credit is typically 7%.
  • The annual interest rate charged on making a purchase with a credit card is typically 20%.
  • The annual interest rate charged on taking a cash advance with a credit card is typically 20%, in addition to a $5 fee.
  • A payday loan costs $15 per $100 that you borrow; for a 14-day loan, that translates to an annual interest rate of 391%.

3. If you’re late repaying a payday loan, the lender can charge even more

If you can’t repay a payday loan on time, the lender can add extra charges to your loan. 

The law in BC says that a lender can charge interest at a rate of 30% per year on any amount outstanding after the loan is due. 

As well, the lender can charge a one-time $20 fee for any dishonoured cheque or pre-authorized debit. 

4. Some payday lenders try to take advantage of you

Some payday lenders will tell you, without being asked, the maximum amount you’re eligible to borrow. (They can’t lend you more than 50% of the net income you receive during the term of the loan.) Some will encourage you to borrow to your limit. This will make it harder to pay back the loan. Which can quickly lead to an endless cycle of getting a new payday loan to repay the one you got last week. 

Some payday lenders ask for a payment up front before you can borrow money. They aren’t allowed to do this. 

Some payday lenders urge you to buy “loan insurance” at an extra cost. By law, they’re not allowed to require or request from you such insurance 

(To protect borrowers, the law in BC sets out a number of things payday lenders are not allowed to do. Learn more about how to protect yourself if you are getting a payday loan.)

5. It’s easy to get trapped in a cycle of high-cost debt

Payday loans can be enticing: they provide quick access to cash, at convenient hours and locations, with no credit check. Most people taking out a payday loan intend to pay it back in full quickly, typically in a few weeks. But when you're paying so much in interest, it can be difficult to do so.

Many end up taking out a new loan to pay off the first. Most people who borrow from payday lenders end up taking out multiple loans. 

Under BC law, payday lenders aren’t allowed to grant "rollovers." A rollover is where a lender gives you a new loan to pay off an existing loan. But borrowers can seek out a new lender. And many do. Credit counsellors report that clients with payday loans typically have three to five loans when they arrive for counselling, skirting the rules by going to rival lenders for new loans. 

The result can be an endless cycle of high-cost debt. It's even got a name: the payday loan cycle.

There are other options

There are less expensive ways to borrow money than taking out a payday loan. 

Option 1. Apply for a new credit card

One of the best options if you need money right now is a new credit card. Most major banks offer promotional rates for the initial month or two. Paying down your credit before the promotional period ends is a good approach to save money and build your credit score

Option 2. Take out a secured credit card

If you have bad credit, one option is taking out a secured credit card. Many major banks offer secured credit cards to higher-risk borrowers. The approval process for these cards is much less strict. However, the issuer usually requires a cash deposit as a guarantee of on-time payment. 

Option 3. Open a line of credit

A line of credit is another good option. Consider opening a small ($10,000 or so) line of credit when you don’t need it and have good credit. (If your credit rating takes a hit later on and you need money, you may not qualify for a line of credit.) Open it, but don’t use it. This will allow you a “safety net” you can use instead of taking out a high-interest credit card or payday loan. 

If you’ve already taken out a payday loan, you may have the right to cancel it. You can always do so within two business days of taking out the loan. You may even be able to cancel the loan outside of the two-day cooling-off period if the lender didn’t cross their t’s and dot their i’s. See our guidance on cancelling a payday loan.

 

</> Embed

Embed People's Law School content on your website. (Learn about embedding content.)

Provide your information
Provide the website address where you will use our content. For example, https://www.example.ca. Just include the part until .ca, .org, or .com.
Copy the embed code
Copy and paste this code to a location within your website. For the embedded content to appear on your site, you must submit this form.
Submit this form
Subscribe to RSS - Borrowing Money