29 – Why You Shouldn’t Use Quick Cash

Wayne Kay  0:04  

Welcome to another edition of the Debt Matters podcast where we help Canadians find solutions to their debt with Licensed Insolvency Trustees from across Canada. I’m Wayne Kay and in today’s show, we’re going to talk about the need for quick cash. Why you shouldn’t be using those same day money services. 

My guest today, Derek Chase, from Derek Chase and Associates, Licensed Insolvency Trustee serving Vancouver Island, Sunshine Coast and the BC North Coast. Derek, thanks very much for being here. 

Derek Chase  0:34  

Hi, Wayne. It’s great to be here today.

Wayne Kay  0:35  

These quick cash businesses, they’re popping up all over the place these days, and you see commercials for them constantly. So if you’ve never used one, what’s your advice?

Derek Chase  0:50  

Well, my advice would be if you haven’t ever used one, don’t. Try to decide it’s too good to be true. Same day money, quick cash, guaranteed approval, these things are interest rate traps. You start in them, and it’s very, very difficult to get out. 

We do see them on storefronts, we see commercials, and all over the internet as well. So there’s a reason they’re out there. And it’s because they’re very profitable for those businesses. But once you start down that road, it’s so hard to turn around and go in a different direction because of the high cost that you’re paying.

Wayne Kay  1:27  

I didn’t know what they were like when they first came out – quick cash or something like that. I was thinking that there was basically something like, the banks were already closed and you needed to cash a check that they would take a bigger percentage of, but you then you got the cash immediately. But then the loans came into play, and a lot of people started using those. Let’s talk a little bit about the costs of getting same day money. And you kind of said it already, it’s quite an amount?

Derek Chase  1:56  

Well, when you’re able to get something that quickly, without the sort of normal documentation that you would have to use to get a loan from a bank, and you don’t have to offer up any collateral to guarantee you’re going to pay back the loan – then the lender is going to charge a really high interest rates, because there’s a risk that they might have difficulty collecting. 

So they’re going to charge an interest rate that’s going to cover off some of their losses, if they have difficulty collecting. And as a result, that interest rate can jump up higher than 20%. So it’s the cost of getting it. Are you getting the benefits – where’s the benefits? It’s a tough choice, because in life, sometimes there’s these emergencies, and we just have to have cash right away. And, you know, that’s an easy way to get it. But in the long run, it’s, in my opinion, a very painful way to go. 

Wayne Kay  2:59  

Yes.

Derek Chase  3:03  

And the danger of starting this is that you have to reapply to get another loan, because you can’t quite pay back the first loan in full. And all of a sudden you’re in this cycle of loans, that causes you to go deeper into debt. And if you are unable to renew at the same place where you went to, you might have to seek out a similar type organization. 

I think it’s quite common that when we’re talking to people that we see half a dozen different types of payday loan type places or quick cash type places that they owe money to. And yes, just impossible to pay back because of the high interest rate.

Wayne Kay  3:45  

Wow. And when one goes to pay the other one, which pays the other one, which pays the other one, and then you start all over again – which has got to be so difficult because you never get ahead.

Derek Chase  3:56  

No, quite the contrary, you’re going backwards each time and I like to talk about momentum when we’re talking with people about their finances. That’s a heavy pole of negative momentum that’s so hard to break. 

And so when you make that first decision, you really have to get out of that very first loan and not renew or not take on subsequent loans because that momentum will just get bigger and bigger in the wrong direction.

Wayne Kay  4:26  

Yes, and we’re not going to name them off. We’re not going to say which was there because it’s almost like every place has a different one with a different name. But people know what we’re talking about, and then when we go online –  is this becoming a problem because it’s just so easy?

Derek Chase  4:46  

It is and honestly I sometimes hear of places that I’m like, Oh, I’ve never heard of that one before. It’s there’s different organizations online, offering this payday loan or quick cash or same day cash service. And there’s a lot of them. One thing that is consistent is the really high interest rate and and often fees to boot – some sort of administrative fee that jumps up the loan a little bit. So it’s a heavy price to pay to get a couple $100 in your hands today.

Wayne Kay  5:21  

So when you talk to people that come in, and they’re needing some help financially –  you start asking, and they start talking about this. What were some of the reasons why they started using a service like this?

Derek Chase  5:35  

Now, there’s quite a few reasons for that. I remember one fellow that told me that he didn’t think the bank would approve them. So he ended up in a 19% installment loan, and I was, oh, I should have tried the bank. 

But other times, it’s just the immediacy, how quickly can I get it. And, if it’s offered to you on the same day, without a lot of hassle, that’s really attractive especially if you’re facing some sort of emergency. So I think that’s probably it, people have run out of money before their next payday, and they need some cash for the next week or a few days. And so it’s just an easy way to get that money. And unfortunately, it comes with a heavy cost.

Wayne Kay  6:17  

What are some other options that they could use instead of going to these quick cash places?

Derek Chase  6:24  

Well, I think you want to firstly consider whether there’s potentially a friend or family that might be able to help you out. Potentially, you could look and see whether you have any redundant assets or things that you value that you’re not using that you might want to sell, like in a garage sale. 

I think in the bigger picture, if you’re really planning ahead that you want to approach whichever bank or credit union you’re with, and see if you will pre qualify for a line of credit. That’s a good resource to have, even if it doesn’t have a balance on it, or you don’t need to use it. It’s just available in case you ever did get to the spot where you had a car repair, or you had some emergency travel. You could access that line of credit instead of going to a payday loan or or quick cash, same day money type place.

Wayne Kay  7:18  

And so that’s okay for us to have that line of credit and not use it.

Derek Chase  7:23  

I think so in my opinion. I think that’s good. In the best situation, you just want to have some money in the bank to avoid having to utilize a same day loan service. And we recommend that people work towards having two months of living expenses in the bank. It’s a warm, fuzzy feeling to have it there. You can deal with some of these unusual things that come up. 

Now, that’s often impossible to accomplish for next week. But if you had a goal, a financial goal to say I want to have X amount of dollars in my bank in 24 months, it becomes a lot more doable to get there. And then I think life gets a lot smoother.

Wayne Kay  8:09  

Yes, once you have that little bit of cushion in the bank account, it does make a big difference. But I think everybody’s gone through where it’s payday to payday. It’s payday to three days before payday. And what’s your advice to them? And how do they even start? How do you go about budgeting to start figuring out how to put some money away?

Derek Chase  8:31  

I think that goes to the question as to why am I considering using this same day loan or same day cash service? It’s going to be because your expenses are greater than your income. And if you start drilling down on that and saying, you can sometimes identify areas that can quickly change within your expenses. And as a result, maybe you’re more at a breakeven type, monthly budget or even hopefully a positive budget. 

So I think going and searching for the reason why you’re forced to consider using those types of services is important and in the long run really healthy for your finances. It’ll set you on a course where each month you’re moving a little bit positively as opposed to paying high interest rate loans.

Wayne Kay  9:26  

I saw a stat last week in the news saying that 47% of Canadians were just making it paycheque to paycheque. And then I saw another stat in the United States, saying half of people said if they had a $1,000 emergency half of them could not take care of it unless they did the quick loan or put it on their credit cards. Do you find that shocking?

Derek Chase  9:55  

Yes, I do. I wouldn’t have guessed it would be that high of a percentage, I would have guessed a little lower percentage. It’s true, it’s out there, it’s a battle month to month to make your budget work. 

And if you don’t know what your expenses are, then you’re going to have a tough time winning that battle. And you’ll probably have to go towards putting money on a credit card or financing it in some other ways. So it’s, yes, it’s a tough one for sure. Because at the end of the day, you have to pay your rent or buy your groceries, but I don’t really have an answer to give to those 47%.

Wayne Kay  10:41  

I think for you, doing credit counseling as part of what the service is, after somebody goes through consolidations, or maybe a Bankruptcy – I would think that the number one thing people need to learn would be, how much money they’re making, and how much money they’re spending. Would that be the absolute basic?

Derek Chase  11:04  

Yes, absolutely. That’s the foundation for having good finances, is knowing those numbers. But I think part of that process is also understanding the lending environments, and understanding that all sources of loans and cash are not created equal. You have this vast range of interest rates, that’s charged and administrative fees that’s charged. Just learning that and understanding that you can say no, to one place and shop for that interest rate somewhere else. It’s good, because you know that that information is power. And in the long run, it keeps your costs lower. 

So it’s an education to firstly understand what your cash flow looks like, what your expenses look like. Then also understand what lenders are going to try and do, particularly if they can get away with it. If you want to blindly stumble into a 28% loan setting, then that’s a rough spot to be.

Wayne Kay  12:11  

Well, you mentioned something earlier that I found quite surprising when you said that one of the people that you were dealing with, they just thought well, I probably won’t get a loan from or I can’t get a line of credit from a bank – that they didn’t check. They just made the assumption.

Derek Chase  12:27  

Yes, it’s quite startling. You are kind of stunned actually, when you hear something like that, but it happens. So, without knowing that there’s differences between the lenders, I suppose, then it makes sense that someone would just go the easiest route. But at the end of the day, lenders have sales and they have different promotions. And if you’re aware of that, and you can watch and you can understand how much you’re going to pay back. If you’re paying it back at 4% interest instead of 14% interest – it’s a big deal.

Wayne Kay  13:06  

What’s your advice for learning to shop around regarding that interest rate? Can you go to different banks and ask or do you just deal with your regular bank?

Derek Chase  13:16  

Well, I suppose it’s getting into more of a question of what type of loan you’re looking at. Whether it’s a vehicle loan, or whether it’s a mortgage rate, or whether it’s a line of credit – shop around. We talk about that as just being an informed consumer. 

And it doesn’t matter if you’re shopping for a pair of jeans or a loan or line of credit. You want to educate yourself and do a bit of research as to what the cost is and what the end result is. And I suppose it’s really no different from a financial product to something that you’re going to consume or buy for clothing or an appliance or anything like that. Just doing a little bit of research to understand what the cost actually is.

Wayne Kay  14:06  

And a lot of people will spend more time investigating which cell phone they’re going to buy, as opposed to stuff where it really makes a difference. That nterest rate can make a big difference in how much money you’re spending monthly.

Derek Chase  14:21  

The interest rate, the administrative fees, how long you are in the loan, as far as repaying it. We talked previously about super long car loans and how that’s no good. And so there’s a lot of factors that go into play as to how much you’re paying back. But for the same day cash, the payday loan, those are probably the highest interest rates that you’re going to find and to cycle one after the other that gets into a real danger zone.

Wayne Kay  14:53  

Yes, so let’s just not go there. Try to avoid it at all costs is what you’re saying. That’s fair enough. That’s what we want to hear. Any final words of advice for us regarding these payday loan places?

Derek Chase  15:08  

I think you just have to be eyes wide open as far as understanding what the interest rate you’re going to pay. And if it’s too high for you, then shop around. Take a look at what other options are available and check on your network and see if there’s any help there.

Wayne Kay  15:24  

Terrific. Derek, thanks very much great information as always. And if somebody is having a tough time, and they maybe want to get some help, or have some questions, you can contact Derek and the team bankruptcytrusteebc.ca. 

And that’s it for today’s Debt Matters podcast. Make sure you subscribe wherever you get your favorite podcasts from. And of course, if you want more information, you can go to our website debtmatters.ca. Thanks very much for listening.