Insolvent debtors in Ontario are taking a risky strategy to try to stay afloat according to a new study.
The study by Licensed Insolvency Trustee firm Hoyes, Michalos & Associates Inc. found that 31% of insolvencies in Ontario in 2017 involved payday loans, up from 27% a year earlier.
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“This is the sixth consecutive year-over-year increase since Hoyes Michalos began to study the impact of payday loans on consumer insolvencies in Ontario” says Ted Michalos. “Insolvent borrowers are now 2.6 times more likely to have at least one payday loan outstanding when they file a bankruptcy or consumer proposal than in 2011. This is a cycle that is just not sustainable.”
Although insolvent Ontarians are taking out fewer loans (3.2 average vs. 3.5 in 2014), the size of the loans is escalating. In 2016 the average loan size was $974, in 2017 it was $1,095, a 12.4% increase.
The share of payday loans of $2,500 or more has also increased, from 6% in 2016 to 9% in 2017. The average insolvent payday loan borrower owes $3,464.
“We see clients using larger and longer-term payday style loans more than ever before” adds Doug Hoyes. “The problem is high-cost, longer term loans do not help someone who carries an average unsecured debt load of $33,461. In fact, it makes their situation much worse.”
Hoyes says that those carrying such large amounts of unsecured debt should seek professional advice rather than taking on even more debt.
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