Anyone with a bank account knows the drill—after so many days of positive banking history, you’re going to start getting bombarded by letters and emails to sign up for their newest lending products. We’ve all seen the same headlines:
Get a low-interest business loan today!
Sign up for our credit card with zero percent interest for six months!
With so many ways to get a loan, why do people use payday loans? Why not just go to your bank or credit union and apply for a loan or a line of credit? Well, there are plenty of reasons that Canadians choose to get a payday loan instead—and there are even more ways to use a payday loan than you might think.
In the sections below, we’ll look at a few of the reasons why people use payday loans instead of traditional banks or credit unions. We’ll also show you some of the most common ways that borrowers put their payday loans to good use to help you determine if payday loans are right for you.
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Here for the money, honey[/caption]
Personal Loans vs. Payday Loans: What’s the Difference?
Before you run down to your local bank and start filling out paperwork, you should know the difference between bank loans (personal loans) and payday loans. Many times, people use payday loans simply because they make more sense for their financial health and their needs. Here are a few of the key differences between personal loans and payday loans:
Getting a personal loan from a bank often mean meeting high credit score requirements. Banks consider average credit scores to fall between 620-679. If your credit score is lower than 620—or if you have no credit history—you could be denied a loan (or suffer high long-term interest rates as a result).
Payday lenders often have much more relaxed requirements when it comes to credit scores. Although your credit score can still determine the type of interest rate you get, you won’t be denied a loan purely from your credit history. In fact, using a payday loan as a means to build your credit is one of the many reasons Canadians choose to take out their loan in the first place (but more on that later).
Along with credit scores, banks and credit unions may have certain eligibility requirements to meet before you are eligible for a personal loan. All lenders are different, but some of the most common criteria include:
Duration of banking history
Proof of past lending experience
Tax information, mortgage statements, rent statements, etc.
And of course, credit unions have their own unique requirements for membership, which typically include specific employment or residency. If you aren’t already a member of a credit union, you’ll have to find one to join—and make sure you meet their criteria.
Payday lenders are well-known for their relaxed eligibility requirements, making short-term loans much more accessible. The best payday lenders in Canada will keep it simple, with eligibility requirements like:
At least 60 days of banking history
Proof of regular income
Being at least 18 years of age
Personal loans can be awarded in high amounts, depending on your credit score and borrowing history. In some cases, you could be awarded up to $50,000 or more. Of course, personal loans are naturally set up to be long-term loans—so while you may end up with smaller monthly payments, you’ll be paying more interest over the total life of the loan.
If you need a smaller influx of cash (somewhere between $100 to $1,500) and only want to borrow for a month or two, a personal loan from a bank may not be the right choice. Payday loans are a great option to pay for smaller emergency expenses or to temporarily cover recurring bills like rent, electric, car payments, and more.
Borrowers with higher credit scores will win on this one, as they will likely qualify for a standard, unsecured loan. Borrowers with lower credit scores, however, may need to opt for a
. That means a lending officer will require collateral in return (like your car title, or your house, in the case of a mortgage). Missing payments could put you in jeopardy of losing whatever you listed as collateral as a result.
Payday loans, on the other hand, are unsecured loans. That means a payday lender won’t require that you attach something of value to back up your loan—which means you get to keep your favorite things right at home where they belong, safe and sound.
Loan applications and processing time
While most banks and credit unions will offer an online application process for a personal loan, they don’t always give applicants the benefit of a quick decision. The review process alone can be anywhere between
a day or two to a couple of weeks
. If you’re waiting up to two weeks for a decision alone, it’s anyone’s guess as to when that money will actually appear in your account.
For those times where you need to count on a quick decision, payday loans are your best bet. Payday lenders offer approval within minutes, and can deliver funds in less than an hour after approval. Even better, payday lenders provide easy online applications and processing that be completed start to finish anywhere on the go—even from your phone!
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Woman On Phone[/caption]
What Can You Use A Payday Loan For?
Because payday loans are both fast and flexible, there are plenty of ways to use them. Here are some of the ways that Canadians across the country have used payday loans:
Covering emergency expenses, like car or home repairs
Emergency tech difficulties, such as replacing a broken laptop or a lost phone
Getting a little extra breathing room from one paycheque to the next
Paying monthly bills, such as rent, mortgage, electric, gas, internet, etc.
Consolidating other debts to pay them off in a short period of time
Financing an unexpected trip or vacation
Establishing a good lending history
Boosting credit scores with on-time loan payments
When it comes to how to use payday loans, the options are endless! After all, there are plenty of times where you may find yourself in need of a little additional cash (and, alas, without a fairy godmother to grant your wish).
Of course, no matter what you use a payday loan for, the best way to utilize short-term loans is to apply them to short-term expenses. Payday loans are an easy way to get access to funds quickly, but they are not designed to be long-term payment solutions. (Here’s where we tell you to
get in a cycle of paying your rent every month with a new payday loan!)
As with any loan, you’ll want to make sure that the borrowed amount and the payments are feasible for your income and your monthly budget. Whether it’s 30 days or 60 days in the future, make sure that your repayment plan sets you up for success without leading to more debt.
When used responsibly, taking out payday loans for one-time, unexpected expenses is a great way to boost your financial health. They can also help you learn key budgeting and borrowing skills to help you keep your wallet—and your bank account—in top shape.
Want to learn more about payday loans and how you can put your loan to good use?
My Canada Payday
is one of the top payday lenders in Canada, and we love partnering with first-time borrowers and seasoned pros alike.