When times get tough, high-interest installment loans, payday loans, and other forms of predatory lenders look like the only way to make ends meet. This is known as desperation borrowing because you’re desperate to get the money, no matter how much it will cost.
Predatory lending companies charge extremely high interest rates making it almost impossible to pay off the loan. With mounting payments and fees, it’s easy to fall into a cycle of debt that you can’t escape.
Here’s what you need to know about predatory lenders and installment loans – what they are, how to spot them, and what alternatives are available.
What is Predatory Lending?
Predatory lending is when the lender (the company lending you the money) charges an excessively high interest rate and fees. High-interest installment loans and payday loans are examples of predatory lending. While payday loans are the most well-known example, there are many other names for this type of lending, including:
- Rapid loans
- Fast loans
- Same day loans
- Payday advance loans
Before you decide to borrow from a lender, you can look for signs of predatory lending, which include:
- High-interest rates
- Hidden fees
- Fast application process
- No credit check
High-interest installment loans
An installment loan is a lump sum payment that you repay over time in installments. While it’s possible to get an installment loan from a bank or credit union with a reasonable interest rate, you’ll typically need a good credit score to qualify.
If you have no credit or bad credit, you can get an installment loan from a predatory lender who typically charges a very high interest rate. This is what many fall victim to when in need of quick cash.
Payday loans
Many predatory lenders offer a combination of installment and payday loans. Payday loans are typically smaller than installment loans and must be paid back sooner. With a payday loan, you can typically borrow up to $1,500 with 62 days to repay your loan.
Payday loans also come with an extremely high borrowing rate. You can expect to pay $14 for every $100 you borrow, which is the same as an annual interest rate of 365%.
For comparison, if you were to use a cash advance on your credit card, you’d have to pay a $5 fee plus an annual interest rate of 23%.
Can you see why a payday loan is considered predatory lending?
Why Do People Borrow From Predatory Lenders?
Most Canadians who turn to installment loans do so out of desperation. They’ve lost their job and need to pay rent, or they’ve encountered another type of emergency and need to make ends meet. Often the only option is to take out a loan from a predatory lender as a form of desperation borrowing.
There are also close to one million people in Canada who are unbanked.2 This means they don’t have a relationship with a mainstream financial institution, making it impossible to take on a traditional bank loan. This can also cause people to turn to these types of loans.
Who is Fighting Predatory Lending
Luckily, there are organizations fighting against predatory lending. One example is the Association of Community Organizations for Reform Now (ACORN) Canada. This company fights for fair banking and lending practices for Canadians, and they’ve had some recent victories, including:
- Lower criminal interest rate. In Canada, the criminal interest rate is the maximum amount a lender can charge on a loan. ACORN has been advocating to lower the criminal interest rate, and in January 2025, the criminal interest rate was lowered from 48% APR to 35% APR.
- Lower payday loan fees. As of January 2025, the federal government also announced a reduction in the payday lender fee to $14 per $100 borrowed.
- Lower non-sufficient fund (NSF) fees. The federal government has also reduced the NSF fees from $48 to $10. Regulations will go into effect in March 2026.
Alternatives to Predatory Loans
In some situations, a payday loan might be your only option. But before you turn to a payday lender, consider alternatives such as:
- Ask for a pay advance from your employer
- Borrow money from a family member or friend
- Ask for more time to pay your bills. Some creditors are forgiving on payment dates
- Cash in vacation days at work
You can also look for less expensive borrowing options, which may include:
- Cash advance on your credit card
- Overdraft on your chequing account
- Seeing if you qualify for a loan or line of credit with your bank or credit union
How to Deal With Debt From Predatory Lending
If you’re drowning in debt from high-interest installment loans or payday loans, know you’re not alone, and there ARE options including: –
Debt management plan
You can work with a credit counsellor to set up a debt management plan (DMP). Your counsellor will reach out to your creditors to try and negotiate the reduction or elimination of your interest payments or to extend the time you have to pay your debt. Since this is voluntary, your creditors do not have to participate.
In the best-case scenario, you end up paying back all of your debt without interest. Worst case, you pay a fee for this service and your creditors don’t want to participate. You’re left owing more than when you start.
Debt consolidation
Debt consolidation is when you combine multiple debts into one. One way to do this is by taking out a large personal loan and using it to pay off multiple debts. Ultimately, you want to consolidate high-interest debt using a lower-interest loan or balance transfer credit card. To do this, you’ll need a credit score that is high enough to qualify for a loan or credit card.
Consumer Proposal
In a Consumer Proposal, you work with a LIT to create an offer to your creditors to pay a percentage of your debt, extend the time you have to pay, or both. If your creditors agree to your proposal and you meet all of the conditions, you’re released from the debts included in your proposal.
Bankruptcy
While Bankruptcy is typically the last option, the purpose is to give honest debtors a second financial chance. In Bankruptcy, you’re released from most of your unsecured debts. In exchange, you’ll have to sell some of your assets. The proceeds from the sale go towards paying back your creditors.
Speak to a Licensed Insolvency Trustee
If you’re in a cycle of debt as the result of predatory lending, you still have options. A Licensed Insolvency Trustee (LIT) can assess your financial situation and recommend a solution to help you find debt relief. For a free, no-obligation consultation give us a call at 1-888-371-8900 or complete our online contact form. Debt relief is achievable and we can help you get there.
