Long term payday loans: the consequences

Posted on 15 November 2023

Written by Trevor Pringle

Payday loans are often used by Canadians for their short term, convenient means of accessing funds. They were given the name ‘payday loans’ for their intention to provide cash when needed quickly in between paycheques, with repayments being due within two weeks. For this reason, they are often seen as a financial lifeline for Canadians facing immediate cash requirements. In fact, almost 2 million Canadians use payday loans each year, likely linked to a rising cost of living and increasing interest rates. Although when used responsibly they can provide much needed support, when extended or relied upon for longer term financial commitments, they can become problematic. Borrowers may find themselves increasingly in need of payday loans, and could face financial challenges as a result. In this article, we explore the consequences of long term payday loans, as well as how to break yourself from the payday loan cycle.

What are the consequences of long term payday loans?

Payday loans – often also referred to as cash advances or short term loans – are typically designed to offer quick access to a small amount of cash. The borrower will agree to repay the loan, as well as high interest rates and fees they might incur, by their next payday. While payday loans can be a great short-term solution for situations where you might need emergency funds, this can all change when they become long term payday loans and you begin to get stuck in a cycle. Here are some of the common consequences of payday loans:

High interest rates

One of the most significant consequences of long term payday loans is the accumulation of extremely high interest rates. Payday loans are notorious for their high APRs (Annual Percentage Rates), which often reach triple digits. When payday loans are continued over a period of time, the cumulative interest can exceed the principal debt that was borrowed. This creates a cycle of debt that can become increasingly challenging to break.

The payday loan debt cycle

By relying on long term payday loans, you can quite easily fall into a cycle of debt. This is where the debt obligations of your current payday loans lead you to take out new payday loans in order to repay the first. This never ending cycle can quickly become a loop of borrowing, repayment, and re-borrowing, trapping you into a debt cycle that is difficult to break.

Impact on credit score

Although payday loans are relatively easy to obtain for most individuals and without the need for a stringent credit check, if you fail to repay your loan accordingly, it can have a detrimental impact on your credit score. Long term payday loan debts will be reported to Canada’s primary credit bureaus, which in turn can have a negative impact on credit reports and make it more difficult for borrowers to access more traditional forms of credit moving forward. At Spergel, our expert Licensed Insolvency Trustees can help you to rebuild your credit score.

Stress and mental health impacts

Managing long term payday loan debts can take a toll on borrowers’ mental health, especially given the stress of accumulating interest and relying on new payday loans to repay previous loans. A constant financial strain, plus the pressure of repayment deadlines, can lead to mental health problems including anxiety and depression. If you are beginning to experience any of these effects, reach out to a Licensed Insolvency Trustee at Spergel today. No matter how bad you might feel your financial situation is, we are here to help you on the pathway to financial freedom.

Collection issues and legal action

If you are struggling to make your repayment obligations, long term payday loans can lead to severe consequences. Lenders can employ aggressive collection tactics. These could include harassing collection calls, and threats of legal action like a wage garnishment, placing a lien on your property, or even freezing your bank account. Each of these consequences can create an even more stressful and complex situation for the borrower, on top of a challenging financial situation.

What to do if you are in a long term payday loan cycle

If you are struggling with a long term payday loan cycle, you might be wondering what you need to do to break it. At Spergel, we have helped over 100,000 Canadians gain debt relief, and so our expert Licensed Insolvency Trustees are here to help. Here are the steps we recommend taking to mitigate the consequences of payday loans if you are struggling with long term payday loan debts:

  • Communicate with your lenders. By being transparent and proactive with your lenders about your repayment difficulties, they are more likely to be flexible and open to making alternative arrangements with you.
  • Explore alternative options. There may be another form of credit that has a lower interest rate, like a personal loan. This could help you to break the cycle of payday loan debt.
  • Create a budget. By developing a thorough budget and a financial plan, you can take greater control over your management of expenses, income, and even your ability to save. Knowing exactly what you have in terms of income and outgoings might even prevent you from becoming reliant on payday loans.
  • Speak to a Licensed Insolvency Trustee. Licensed Insolvency Trustees are the only professionals in Canada legally able to file all forms of debt relief. This makes them well positioned to review your financial circumstances and recommend an appropriate form of debt relief for you. Filing a consumer proposal can wipe off up to 80% of your unsecured debts while enabling you to keep your assets, and filing bankruptcy can offer you the fresh start you may need. At Spergel, we have been helping Canadians to gain debt relief for over thirty years.

Long term payday loans: FAQs

What is the longest term a payday loan can be?

Payday loans are usually for an amount of no more than $1,500, and for a term of no more than 62 days excluding any extension or renewal. Due to the short term, it can be difficult for many individuals to make their repayments on time. This in turn can lead to taking out another payday loan in order to pay off the first. For this reason, it is important to break the cycle as soon as you can. At Spergel, we will review your options and help you to break your cycle.

Are payday loans illegal in Canada?

No, payday loans are not illegal in Canada. They are permitted under section 347.1 of the Criminal Code, provided the provincial laws are followed. In Ontario, all payday lenders must be licensed by the Ontario Ministry of Government and Consumer Services, and so it is incredibly important to check your lender is on the list before taking out a loan. All licences must be displayed in the store or on the website, too. Unfortunately, there are plenty of fraudulent payday loan lenders out there and it can be a risky business taking out a loan. At Spergel, we recommend you speak to one of our Licensed Insolvency Trustees if you are unsure on the legitimacy of a lender. We can review your financial circumstances and recommend a pathway for you.

What is the maximum payday loan amount in Canada?

In Canada, you can borrow up to a maximum of $1,500 on a payday loan and you have up to 62 days to make your repayment. Payday loans are different from other forms of loan in Canada because they are intended to only be short term. Traditionally, they are intended to tide you over until your next paycheque, at which point you make your repayment. It is also possible to secure a payday loan without a credit check.

While payday loans can provide immediate financial relief for many Canadians, their long term consequences can be severe. Borrowers should exercise caution, consider alternatives, and seek financial guidance from a Licensed Insolvency Trustee to avoid falling into the pitfalls of long term payday loan debt. Book a free consultation with a Licensed Insolvency Trustee at Spergel to gain a clear understanding of the potential long-term repercussions of payday loans, and your alternative options.

What to read next


Trevor Pringle

Trevor B. Pringle is a Chartered Insolvency and Restructuring Professional with over 20 years’ experience as an LIT (Licensed Insolvency Trustee). He is also Spergel's resident expert on consumer proposals and small business debt. When Trevor isn't at the office providing debt relief to Canadians and corporations with his innovative problem-solving skills, Trevor enjoys regular trail runs in the Dundas Valley.

Schedule a Free Consultation with Trevor Pringle (or your local Spergel LIT) by:

Phone 1-877-501-4321 (toll-free)

24/7 live chat (with a human) on our website

Facebook messenger

Email (hello@spergel.ca)

Online booking calendar

Be Debt Free. You Owe It to Yourself.

Helpful starting information:

What to Bring to an Appointment

To get the debt help that you need, please bring a list of who you owe and how much to each, a list of everything you own and your monthly household budget. Don’t have everything right away? Don’t worry – We will guide you through each step.

Download Form

Your Information

We’ll walk you through our application process. But, if you want to prepare for your debt free assessment consultation in advance, download our information form and fill in what you can.

Download Form

Calculate Your Debt Repayment Options

How can you compare your debt repayment options if you don’t know how much they will cost you? Your solution will become much clearer when you are able to compare costs.

Debt Calculator

Ready to Be Debt-Free?

If you’re ready to be debt free, it’s time to meet with one of our knowledgeable Licensed Insolvency Trustees at your convenience and get started

Meet with a trustee