If you don’t have any experience with getting a loan, you may run into trouble with your loan. Depending on which type of loan you want, there are many steps involved. Some loans require collateral; others are restricted for special use. You have to be prepared and have correct information on any type of loan you’re choosing.
Payday loans are mostly targeted at people who are desperately in need of financial aid but do not have many options. As you may be aware, getting a personal loan often requires a long process. And there are situations where you may not qualify for a personal or business loan. It is often the last option for many individuals. These types of loans bear similarities to personal loans and are one of the quickest ways to get a loan. The offer several benefits and lets you borrow up to $1500.. Before you make a decision, read ahead to learn all you should know about payday loans. You’ll also read about how it works and who’s qualified to get one. Let’s get started!
Payday loans are also known as cash advance loans or check advancement loans. It is a short-term loan and it lasts for only a few weeks. The main advantage of payday loans is they provide you with an alternative way to borrow money and finance your bills. It is best for people looking for quick cash for emergencies.
They can also be described as unsecured personal loans which do not require any collateral or restrictions. They are generally a maximum of $1,500 or less with interest rates that you must pay back by your next paycheck. Moreover, it is the last option for people with poor credit scores who can’t borrow from other sources.
When you apply for a payday loan, the lenders check your income to determine how much money you’ll get. Most payday loans are a direct payment with a fixed interest rate which you’re expected to pay back with your next pay cheque. It provides you with instant cash which you can use to settle emergency bills or other needs.
The loans are available through lenders who will first examine you and send you the cash if you're qualified. Payday lenders typically consist of small credit merchants who have storefronts where customers can physically apply for loans. Instead, there are online payday loan providers which offer an easier and faster service.
There are two ways you can get a payday loan; through an on-site loan application or an online application process. The process may involve a hard credit check where the lender accesses your credit score however, this is not common with payday loans. You may also have to provide evidence of your income and expected payment date.
In addition, there are federal and provincial policies that regulate payday loans and operations. These regulations place limits on the payment fees or interest rates that payday lenders charge. In some provinces, payday loans are banned because of the high debt risk that is usually involved. Learn more about what payday loans entail:
● To repay the loan: You can either pay through a postdated check or direct bank deposit. For instance, you can repay the loan by giving the lender access to your bank account. Once your wages or social security benefits enter the account, then the lender can remove his payment. Once the loan has been repaid, then the transaction is complete.
● Payment Fees and Services charges: Many payday loan providers do not have a permanent interest rate for their loans. They calculate their interest rates based on the amount you borrowed and add this to the principal amount you borrowed,
For example, the lender may charge $15 on every $100 of the borrowed money. If you borrowed $400, then it means that you have to pay back $460. If you can’t afford to make the payment by your next payday, then the fees will increase and you may face more interest charges.
● Credit Testing: Your credit score does not really matter with payday loans and you can get a personal loan even with bad credit. The lenders typically calculate the principal loan based on your income levels and credit. So the loan you get is usually an amount you can afford to pay back.
Once your loan request has been approved, you’ll get the money directly in your bank account. Meanwhile, if you do not pay back the money the lender may hire a debt collector to secure repayment. However, this is often the last option after other futile attempts to obtain repayment.
For instance, if you obtained a $500 loan on the 5th of January, the loan period lasts for 62 days so you’re supposed to repay by the 9th of March. So once you receive the loan, you should prepare to refund the money by that date. The repayment will include the principal amount plus the interest rate charged at $15 for every $100 borrowed.
Although payday checks are generally unsecured, lenders will try to get their money through a repayment plan. It is a legal document that is binding on both you and the creditor. In the repayment plan, you and the creditor (lender) will agree on a specified period of time in which you’re to repay the money. Failure to pay may attract a court case.
Payday Loans are cash advances that last for a short-term period, with a low balance and interest charges. It is a quick and easy fix for anyone who needs to get out of a financial hole. It is unlike other business or personal loans that could span at least 5 to 10 years. Payday loans last 62 days and the lender may expect payment upon your next paycheck.
They may also be referred to as credit advance loans, check advance loans, post-dated check loans or deferred deposit loans. If you've been refused a loan because of your poor credit and low income, then a payday loan is another option. It involves a very simple application process and an online application for a payday loan will take less than five minutes.
However, not every person is qualified and is approved for a payday loan. There are many requirements for you to be eligible for a traditional loan. You will need to provide your personal and financial information, proof of income, credit check and so on. But with payday loans, there are only three primary requirements.
● Age – The first is that the borrower is at least 19 years of age. Any loan contract that is made with an under-aged minor is invalid. According to the government laws, you must have a valid identification that shows that you’re not a minor. So if you’re 19 years or above, then you’re eligible to get a payday loan. Also, an adult cannot obtain a loan on behalf of a minor.
● Income – You would be eligible for a payday loan if you have a source of income. Payday loans are only available to people who have a steady means of employment. You’ll also need to show proof of income before you’ll be considered. Some lenders even require that the job must be one you’ve had for at least six months.
There is no specific job requirement, all that is important is that you have a regular source of earnings. The lenders will also offer you a loan based on your income to ensure that you can pay back the money on the full date. However, a low income does not mean you will not get a loan at all.
Furthermore, you need to get your salary either by direct deposit or by cheque. If you don’t have this arrangement, it will take longer to facilitate the process and get the money quickly. Payday lenders will require a pre authorized payment. This ensures that they get their money no matter what.
● Permanent Address – You may qualify for a payday loan if you don’t have a permanent residence. So even if you’ve just moved to a new residence or province, you would qualify for a payday loan if you meet the requirements.
Some other requirements are;
● You must have a checking account that has been valid for at least six months.
● If you’re bankrupt or subject to attachment of wages, then you would not qualify.
● You must have a valid means of identification.
Payday loans are legal and available in all provinces or territories across Canada. However, all provinces have their own specific rules on how the loan process should operate. These regulations typically affect how much you’re allowed to borrow and the maximum rates lenders can charge. They also specify whether or not you can get two separate payday loans at once.
Government regulations on payday loans, help to ensure a fair arrangement between the lender and the borrower. They ensure that the lender does not place predatory high-interest rates which often causes the borrower to fall into debt. You should know the regulations in your province before you borrow to ensure that the lender is obeying the law.
In British Columbia, the maximum interest rate for a payday loan is $15 per $100. This means that if your loan is $100, you will pay back $115. If your loan is $600, the lender will get $600 plus the $90 interest. You can only borrow a maximum of $1,500 from a payday loan in this province. In addition, the law provides that the loan period must not exceed 62 days. It only allows one loan per borrower and provides for a cooling off of two business days. You should also be aware that the lenders must set a borrowing limit at 50% of your income. And no lender is entitled to access the borrower's bank account. And, there's no rollover or extension of the payday loans.
Like British Columbia, Alberta province sets their maximum rate at $15 per every $100. It also offers a cooling period of two business days. The loan term is between 42 to 62 days, and payments must be split up into the next three pay periods. The regulations are quite different from British Columbia. Unless it’s a pre authorized debit, the lender cannot access the recipient’s wages and it does not offer rollovers.
In Manitoba, the highest interest rate is $17 per $100 for payday loans. It sets $1,500 as the maximum borrowing rate. It also gives the parties 48 hours cooling off term except on Saturdays and holidays. The borrowing limit is 30% of the borrower's net income. Manitoba allows extensions for payday loans
Ontario has the same rates and rules as Alberta and British Columbia. However, it requires that the lender provide an extension if the borrower obtains about 3 loans within 63 days. So the borrowers can get more than one loan at a time. It does not offer rollover and the lenders are unauthorized from accessing the borrower’s pay.
The province of Quebec provides a 35% annual interest rate as the maximum limit for lenders. The payday loans cannot be rolled over or extended for any reason. The term of the loan must extend for more than 62 days.
Newfoundland and Labrador expressly state that the borrowing limit is 50% off the borrower’s take-home pay, i.e. net pay. The highest interest limit is $21 per $100 and the maximum amount you can borrow is $1,500. It also offers to cool off for 48 hours except on Sundays and the holiday season.
Nova Scotia offers an interest rate of $19 per $100 that lenders cannot charge above. The highest loan available is at $1,500. So to pay off the loan, you’ll have to refund the $1,500 and the extra $285 interest. The regulations also firmly state that the loan term cannot extend past 62 days. It makes provision for a cooling period which lasts till the next business day. Also, the cooling period for online payday loans is 2 days. The lender cannot tamper with the borrower's account or wages except he has been preauthorized to.
It lends out at most $1,500 at a minimum interest rate of $17 per $100 for eligible recipients. The loan amount is based on 50% of the borrower’s job income. It only allows one loan per borrower, at a time.
It has a maximum interest rate of $15 per $100, for a loan not exceeding 62 days and under $1,500. The regulation also provides for a cool-off period of 2 business days.
In these territories and provinces, the maximum interest rate is 60% APR which is quite low compared to other regions. It provides that the payday loan must not pass 62 days. Any payday roll above $1,500 will be invalid according to state regulations.
It offers a payday loan at $15 per $100 interest rate of the total loan amount . This total loan amount must not exceed $1,500. The province also regulates that the loan period cannot last 62 days and cooling off time is 48hours excluding Sundays and Holidays. It restricts lenders from withdrawing money from borrowers' bank accounts or salaries. The loan amount is based on 30% of the recipient's income.
If you’ve fulfilled all the basic requirements for a payday loan, then your application process will be easy. The approval process is very fast and online approval takes about 15 minutes after which you get the money. The funds will be transferred by Interac e-Transfer, 24/7. The loan is based on a percentage of your job income and this will determine the amount you get.
If you do not qualify for traditional bank loans, a payday loan may feel like the best option. Payday loans offer an effective and simple way to get money without having to go through a long process. However, while there are many benefits to using payday loans, there are some alternative options you can try.
If you need to make a quick purchase and you still have some money in your credit account, then you may not need a payday loan. You can simply charge the expense to your card at a low-interest rate. In addition, credit card companies offer a 30 days balance period so there’s still time to pay the credit card balance before it incurs interest.
Another alternative to payday loans is to get an online personal loan. There are some personal loans you can get even if you don't have good credit. However, personal loans tend to have high-interest rates especially for people with bad credit. So the lower your credit score gets, the higher and more expensive the interest rates cost.
To apply for a personal loan, you have to search for lenders with rates that fit your credit score. There are several independent online lenders, and they have the same high-interest rates as payday loans. Once your application gets approved, you can receive your money within 1 to 2 business days.
If you need quick funds but you’re trying to avoid a payday loan debt, then you can opt for a cash advance. You can choose to request a cash advance from your employer. All you need to do is apply through the HR or payroll service departments. You will receive a part or full advance on your salary before the payroll date.
You can also get a cash advance from online financial companies to settle your urgent bills. It is similar to payday loans in that the lenders often require access to remove their money from your direct deposit on your next pay. The cash advance does not come with any late fees or interest rates.
Another interest-free alternative to payday loans is pawn loans. If you need fast cash and you don't want to pay any interest on the loan, you can get a pawn loan. The pawn shop will keep your valuable item as collateral or security until you pay back the loan. The amount of the loan is usually based on the resale value of the item.
Once you successfully complete the payments on your loan, you’ll get your jewel back. If you’re unavailable to pay back the loan, the pawnbroker may end up selling your item to mitigate any loss. Pawn loans usually involve high-interest rates and they tend to come at a high fee.
Many pawn loans include charging APRs above 200 percent and the general term to pay back pawn loans is 30 days. However, it is not common for pawnbrokers to report your payment or financial history to credit companies. So if you don’t pay back the loan, your credit won’t be affected but you will lose your treasured item.
Payday loans are highly beneficial to people who need financial aid but don't qualify for traditional bank loans. It also has a fast approval rate which is useful in case of an emergency and it does not require a credit check. Although there's a long list of pros, there are some cons that come with payday loans.
Payday loans could lead to an unending debt cycle and it often comes with high-interest rates. It is most effective for people who pay off their debts quickly. If you pay back the loan as soon as your next pay comes in, then you won't incur any extra debts. Now that you’ve learned all about payday loans, you can now decide if it’s a good fit.