Predatory Lending: How Payday Loans Will Cost You 

July 19, 2022

Whether it’s your car needing repairs, you forgot that insurance bill, or your air conditioner has decided to break down on the hottest day of the year, sometimes you just can’t plan for a large expense.  

You may find yourself in a sticky situation where you need cash fast. Before you get there, it’s good to consider where you can turn to for a loan, especially if you aren’t sure which type of loan is best for you.


What is predatory lending?

It can have a few different names: high-cost credit, payday loans, cash advance loans, subprime mortgage lending, etc. which all fall under the same category. They might look different, though, when you’re filling out an application, or depending on your credit need.  

In all these situations, loans are given without a stress test and often without checking a credit bureau, so it’s never clear if the borrower will be able to pay it off in a timely manner. That seems like a bad idea, right? That’s because it is. These loans can impose unfair, even abusive loan terms on a borrower.


Payday loans look easy. They’re short-term borrowing with quick cash – but very high interest. They may even seem like the best choice in the moment: the borrower can be between a rock and a hard place, and that’s when it is easy to succumb to unfair lending practices. But stop and take a look at what the damage can really add up to.

Payday lenders can charge as much as $15-17 per $100 borrowed – that’s 17% interest on $100! And if you can’t make the payment on time, the lender can charge you up to 30% on the outstanding principal of the loan.

With that interest rate, if you borrowed $1000, you would pay at least $150 in interest alone. If you miss your payment, it could double to $300!

Money Mart

In comparison, from a mainstream lender such as a bank or credit union, interest rates for personal loans can start from around 4.7% at Libro for example, saving you over $100 just in interest.  

And that’s before we even consider some of the other terms of a payday loan. For example, without any security, such as a vehicle or home, your pay cheque is used as collateral and can be taken in full by the lender if you do not pay.


What can you do instead of relying on a payday loan?

You might feel stressed and in a hurry – but you have options! 

Work with a lender willing to discuss the loan, why you need it, how much you need, and add in conversation about your personal circumstances, and – this is the most important part – if you can afford payments to pay off your loan on time.  

We can help you with this and more at Libro – we have overdraft protection that makes sure your bills won’t bounce, lines of credit for those expenses that pop up unexpectedly, and various personal loans for everything else. Libro offers financial coaching to more than 110,000 Owners to help everyone prosper.  

And when you have a bit more time:  

Get ahead of the problem and ask yourself what you really need. Do you have an emergency fund or credit loan that can take a hit, should you be caught with an unexpected expense? Think ahead and consider where you would find funds if you had a sudden loss of income.  

Consider saving up an emergency fund that could support you for three months. And you could discuss overdraft protection, a line of credit, or a personal loan with a low interest rate with your financial institution to provide another income source in case of emergency.


Remember: not all loans are created equal, especially when you think about what’s best for the borrower. We can help you find the best type of loan for your needs, putting you in the best position to pay off your loan on time.  

Contact a Coach to talk about the best option for you.  

By Cassie Hunter

Cassie is Libro's Communications Specialist. Her goals include seeing local businesses thrive, reading too many fiction novels, and letting beautiful house plants overtake her home.