A study on personal insolvencies in Ontario last year showed that payday loans are used widely among heavily indebted borrowers and are one of the reasons why many Canadians are filing for insolvency.

More than double the number of Canadians have taken out payday loans since 2009, according to a report by the Financial Consumer Agency of Canada (FCAC). The growing popularity is understandable because these types of cash advances offer a quick and easy way to get cash. Borrowers don’t have to go through extensive checks that banks make. What’s more, payday loan lenders have no problem lending to borrowers with bad credit and have a history of struggling to pay back money borrowed in the past. For people who are already carrying a high amount of credit card debt, bank loans, and other unsecured debt, payday services provide a way for them to keep up with the minimum monthly payments on their other debts as well as their monthly living costs.

Payday Loan Cycle

Payday loans, sometimes called cash advances, are commonly used to make ends meet. They bridge expenses up to the next payday when the money borrowed becomes due, which in most cases is two weeks.

The typical payday services borrower has trouble paying for basic monthly expenses such as rent or utility bills and have nowhere to turn to when they need money quickly. The common scenario is they have no credit card or have a very low credit limit and have maxed out and they can no longer use it to buy groceries unless they pay off some of the debt to make credit available again. In other cases, they need to cover rent and avoid eviction or pay utility bills to avoid cut off.

The problem begins when you run out the next payday. You start to borrow and then take out another advance from a different lender and another lender and so on, and the next thing you know you have multiple payday loans with more than $5,000 outstanding debt, and with interest rates at 390% annually or 30% to 60% on fast-cash amounts borrowed, that could add up substantially and leave you in worse shape.

Payday loans are expensive debts. Their sky-high interest rates can be as high as 500-600% annually, according to the FCAC. Compare that to the 15%-30% APR on credit cards or 10%-25% rate for a personal loan from a bank or credit union and you can see why using a payday service company to borrow money is more expensive than a cash advance on a credit card.


When you default on a payday loan, you risk facing serious legal consequences. You have to keep in mind that when you borrowed the money, the payday lender required you to provide a post-dated cheque for the total amount borrowed including fees and had you sign a document that showed your agreement on the loan terms, so you can’t default and expect to walk away unscathed.

In Ontario, missing payments on a payday loan can lead to the following:

  • The payday lender can charge interest for the time the payment is past due, which can be up to 60% as an annual rate plus other late fees and charges if applicable.
  • If the lender processes a post-dated cheque or initiates automatic withdrawals, your bank can charge overdraft fees if there isn’t enough money in your account.
  • Your debt will accrue, interest changes and late fees will pile up and you’ll be stuck in a debt trap.
  • The lender may try to contact friends, relatives, your employer or anyone you used as references in attempts to reach you to collect the money you owe.
  • The lender can send your account to a collection agency, which will affect your credit score and make it difficult for you to borrow money in the future.
  • You can be sued for the debt and have your property seized and wages garnished.

The best thing to do if you can’t repay the loan on time or have already missed a payment is to talk to the lender to work out a new repayment plan. Any lender would prefer to collect the money directly from you rather than pay extra for a third-party collection agency to do the job.

Make sure that any new agreement you make with the lender is put in writing. Ask questions if you don’t understand anything about the new terms of the loan and read the agreement carefully before signing it.


Repaying the amount borrowed from the Payday services company through a debt consolidation loan is unlikely to provide a real solution. For one, your damaged credit score may not qualify you for a low interest loan and a high interest bad credit consolidation loan will only compound the debt.

A debt management program or a DMP is not a solution as well as most payday lenders will not participate in a DMP.

If you have too many payday loans and they’re too overwhelming to handle, you have two options to consolidate these debts into one lower monthly payment.

Payday Loan Consolidation With a Consumer Proposal

You can consolidate all of your unsecured debts, including multiple payday loans, credit card debts, lines of credit, income tax debts, certain student loans and other personal loans and make one single monthly payment usually for up to 5 years. A Licensed Insolvency Trustee will even negotiate with your creditors to reduce a portion of your debt so that you pay less than what you actually owe. If you’ve defaulted on your payday loans, a consumer proposal will protect you from wage garnishment, collection calls and stop legal actions to seize your property or freeze your bank account.

Payday Loans and Bankruptcy

If you cannot afford a consumer proposal, filing for bankruptcy may be looked into as a last resort. Four out of 10 borrowers who go bankrupt have multiple payday loans, and owe two times their total monthly take-home pay.

It may not be worth filing for bankruptcy if you have just one or two payday loans with small amounts, but you may want to consider it if you have other unsecured debts, including payday loans, credit cards and medical bills, and they total half or more of your income.


If you’re stuck in a payday loan cycle, know that there are debt relief programs that can help you eliminate debt. Contact Richard Killen & Associates now and talk to a local licensed insolvency trustee for a free consultation. We can review your financial situation and look at several options on how best to get rid of your payday loans debt in Ontario as well as provide valuable advice on finding better alternatives to deal with financial challenges.

728 resource animation 1

Contact Richard Killen
FREE No Commitment Consultation

Contact us now for a fresh start!

“Serving Toronto & the GTA for over 25 years.”



    cup half full book

    question and answer

    Recent Blog Posts

    About Richard Killen & Associates

    Since 1992, Richard Killen & Associates, a Licensed Insolvency Trustee, have helped thousands of people resolve their financial problems. With 25 years experience in this industry, our president, Richard Killen, and the rest of our team understand the difficulties that honest people can sometimes find themselves in. This expertise makes it possible to provide you with a service that effectively deals with the issues.

    Contact us now for a fresh start!

    "Serving the GTA for 25 years."