Canucks Underestimate Payday Loan Costs

Historical archive, first published 2005 — payday-lending laws and rates have changed since. Preserved for the record.

Ottawa, Canada — According to a recent poll, Canadians don't know the true cost of using payday loan companies.

About 60% figured the rate was at or somewhat above credit-card interest charges, which generally range from 15-25% a year. Another 25% of respondents guessed it was less than credit-card rates.

So almost 85% of people thought interest rates were 25% or less. Of course when a $300 loan over two weeks costs $50 in fees you'd never guess the interest rate was higher. In fact, you'd probably guess the interest rate was around 20%. However, remember you have a couple weeks to pay it back, not the entire year. If you figure out the interest over the year (which is how APR is computed), that's actually 435% APR. That makes cash loans pretty darn expensive.
Looks like the Canucks are a little low on this one.