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Payday loans are popular sources of emergency funds because they are easy and fast to get. These short-term loans have to be repaid in 10 to 14 days or next payday. However, because of the rapid rise in unemployment as a result of the recession, some people may be wondering how unemployment is affecting the payday loan industry in Canada.

Importance of employment to payday loan companies

One of the common requirements when getting a payday loan is an employment history. Therefore, this kind of loan is not normally given to people who are unemployed. This means that the higher the unemployment rate, the less potential customers these companies will have. However, a quick search for payday loans in the Internet will show that these kinds of lenders continue to fluorish despite the rise in unemployment. Thus, it appears that the industry is hardly affected by the recession. It may be that there are still more than enough customers that those who are employed.

Emergence of payday loans for the unemployed

However, there is one possible indicator that the rise in unemployment may be starting to affect the industry. This is the appearance of payday loans that are targeted towards the unemployed. This kind of payday loan is still extremely rare but if they start to increase, this may mean that the loan companies are now venturing into new areas because they are beginning to feel the effects of unemployment.

Effect of increased delinquency

Another impact of unemployment on payday loan companies is the increase in delinquent borrowers. This is only natural because those who have taken out loans may suddenly find themselves jobless. This is expected to have a negative effect on the industry especially when they are under pressure not to raise their interest rates and fees. They are unable to make up for the increase in losses by raising fees. Thus, some payday loan companies may have no choice but to shut down their operations. Luckily, there have been no signs yet that this is occuring and the payday lending industry appears to be weathering the recession quite well. This may be good news to consumers who have nowhere to go when they are faced with a financial emergency.

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