Payday loans are becoming more popular for heavily indebted Ontarians.
Almost one-third (31%) of 2017 insolvencies in the province involved payday loans, finds research from Hoyes, Michalos & Associates, an insolvency trustee firm. That’s up from 27% in 2016, and is the sixth consecutive year-over-year increase since the firm began studying the impact of payday loans on insolvencies.
“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,” says Ted Michael, founder of the firm. “This is a cycle that is just not sustainable.”
The research also finds that insolvent debtors are taking out fewer, but larger, loans. 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 is $1,095, an increase of 12.4% from $974 in 2016. One in 10 (9%) loans are $2,500 or more, up from 6% in 2016.
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. That indicates that these borrowers use payday loans to keep up with existing debt repayment.
Lack of savings
Many Canadians are challenged to save, with an H&R Block study finding that 47% of Canadians say they don’t contribute at all to RRSPs or TFSAs.
In accordance with a BMO survey, the H&R Block survey finds that only 33% of Canadians plan to contribute to an RRSP before the deadline. And only 37% of Canadians plan to contribute to a TFSA this year.
About the H&R Block survey: From Dec. 27 to Dec. 28, 2017, an online survey was conducted among 1,522 randomly selected Canadian adults who are Angus Reid Forum panellists. The margin of error, which measures sampling variability, is +/- 2.5%, 19 times out of 20.
About the Hoyes, Michalos & Associates research: The research is part of an update to the firm’s 2017 Joe Debtor bankruptcy study. That study is the fifth since 2008, and reviews details from more than 6,700 personal insolvencies in Ontario from Jan. 1, 2015, to Dec. 31, 2016. Results were compared with previous studies to identify trends.