What is a payday loan and who uses it?
Payday loans are unsecured small-sum short-term loans typically for a few hundred dollars. The average payday loan is around $280 for a period of 10 days.
Payday loans are specifically designed to help customers with one-off, unanticipated expenses. Payday loans are not a form of “revolving” credit designed to keep customers in a permanent debt position.
The lender will typically lend up to a specified percentage of a customer’s net pay for a period of 1-14 days, ending on the payday. The borrower writes a post-dated cheque for principle plus interest and fees, dated on the next payday.
To qualify for a payday loan, a customer must be employed and have a bank account.
Payday loan customers are average Canadians with near-median household incomes. Fifty-three (53) percent are women, 47 percent are men.
A recent survey by Pollara (PDF) demonstrates that payday loan customers are educated Canadians. They are fully aware of the “dollars and cents” cost of obtaining a loan. They appreciate the convenience and flexibility of the product.