We ended last week talking about loan sharks. Some of you may have run intot hem before, and know it’s no joking matter, but others among us have never met a real life loan shark, and can’t imagine ever needing one.

You might laugh, and even think you’re too smart for to fall for that kind of thing, envisioning a seedy character roughing people up for gambling debts.

But many people have been sucked into an equally costly kind of loan, and don’t relalize it because it’s offered by a legitimate looking business with colourful signs and advertising.

I’m talking about Payday Loan companies that offer quick, cash loans. They’re everywhere – it seems like every strip mall has one or two of these now!

And in my province, Ontario, there are some laws about this.

I asked you yesterday to guess just how much interest a legal business could charge you.

Well, in my province, Ontario, the cap is $21 for every $100. Note that this isn’t a 21% APR – the typical payday loan is for about two weeks. So this is 21% for just two weeks of borrowing the money.

That comes to 546% APR. It’s supposed to be illegal to charge someone more than 60% interest in Canada, but they get away with this because the loans are supposed to be very short term — about two weeks, which is why interest rates are not required to be expressed as annualized amounts.

That’s why the Ontario government says,

Payday loans are an expensive form of credit. Before getting a payday loan, you should consider other ways to borrow money (e.g., from family or friends, a bank or credit union or your credit card).

And includes this table to compare with credit cards:

If you borrow $300 for 2 weeks: Payday loan
Credit card
(fee with interest at 23%)
1 loan will cost $63 $2.65
2 loans will cost $126 $5.29
4 loans will cost $252 $10.59
6 loans will cost $378 $15.88

Yes, the government would actually prefer you use credit cards to one of these businesses. Credit cards are nto cheap at all to carry a balance, but they are better than these payday lenders.

Reminds us of the importance of shopping around for credit. No matter how friendly the lender may appear, they are not your friend!

Question: What is the highest interest you’ve paid on a loan?