(WINDSOR, ON) – Payday loan use among heavily indebted Ontarians continues to escalate, according to research released by insolvency trustee firm Hoyes, Michalos, and Associates. The study reveals that almost 3 in 10, or 31% of, insolvencies in Ontario in 2017 involved payday loans; up from 27% in 2016.
“This is the sixth consecutive year-over-year increase since Hoyes Michalos began to study the impact of payday loans on consumer insolvencies in Ontario,” said the firm’s co-founder Ted Michalos. “Insolvent borrowers are now 2.6 times more likely to have at least one payday loan outstanding when they file a bankruptcy or consumer proposal than in 2011. This is a cycle that is just not sustainable.”
Another change is the size of loans.
Insolvent debtors are taking out fewer loans in favour of larger loans, according to the updated research. The average number of payday loans outstanding at the time of insolvency declined to 3.2 in 2017, after peaking at 3.5 loans in 2014. However, the average payday loan size in 2017 was found to be $1,095, an increase of 12.4% from $974, in 2016.
One in ten loans are $2,500 or more, up from 6% in 2016.
“We see clients using larger and longer-term payday style loans more than ever before,” added Doug Hoyes, the firm’s other co-founder. In his view, the problem is, “high-cost, longer term loans do not help someone who carries an average unsecured debt load of $33,461. In fact, it makes their situation much worse.”
The average insolvent payday loan borrower owes $3,464 in payday loans, or $1.34 for every dollar of monthly take-home pay, on top of $29,997 in other unsecured debts. It is not uncommon for the debtors to use payday loans to keep up with existing debt repayment.
“Most clients tell us they know payday loans are an expensive borrowing option, however they turn to payday loan companies to keep all of their other debt payments current for as long as they can,” explained Hoyes.
He offers one piece of advice for those dealing with significant unsecured debt.
They should, Hoyes recommended, find a more robust debt solution. They can do that by speaking to a financial professional like an insolvency trustee. Often such meetings can increase the options they have available, “to get those debts under control.”