There are seemingly countless forms of loan types to choose from today, making it harder and harder for prospective borrowers to decide which kind is best for them, especially in less clear-cut situations. When buying a home or maybe a brand-new car, the type of loan to choose is often obvious. In most cases, borrowers would elect to get a mortgage or an auto loan to finance the remaining principal of their balance.
There’s a bit more room for creativity and personalization when it comes to alternative sources of borrowing, though. If you need something under roughly CAD$1,500 for a small purchase like a new fridge, a medical expense, a home improvement project, or something similar, there’s a way of obtaining quick money for such purchases. One of the most popular alternatives to traditional lending is something called a payday loan.
What Is A Payday Loan?
Payday loans are called as such for a reason. It’s essentially a loan that’s relative to your next potential paycheck. These short-term loans are funds you acquire, with the payment expected to be taken out of your next paycheck. It could be a monthly or even a weekly deduction, depending on a lender’s requirements.
It’s probably safe to say that most borrowers have been wary of these or even told to avoid them, but there are safe ways to utilize these loans if you find yourself going this route. Payday loans are now more convenient than ever to apply for in many parts of the world. And now, you can even get online payday loans in Canada.
Whether or not payday loans are for you is a personal decision subject to your unique financial situation. If this ends up being your lending source of choice, this article will present an overview of everything you need to know about them, and how you can conveniently access them online.
Laws, Requirements, Repayment, And Expectations
In Canada, you can only borrow up to CAD$1,500 with payday loans. In the most populated Canadian provinces such as Alberta, Ontario, British Columbia, Manitoba, and New Brunswick, borrowers will have 62 days to pay back a payday loan. To qualify, lenders will typically require you to show proof of regular income, a permanent address, and a bank account to go with that.
When applying for a loan, lenders will usually require you to do one of two things to ensure their repayment. One is to sign and fill out a form that consents the lender to withdraw the total amount from your bank account when it becomes due, which includes the interest and fees. This can be referred to as a pre-authorized debit. The other is to provide them a postdated check to account for the loan and included fees.
After the application process has been completed and your loan is approved, the money will usually be disbursed through direct deposit or cash. In some rare cases, a prepaid card will be provided.
Interest Rates On Payday Loans
Payday loans are also known to come with significantly inflated interest rates, with even quality lenders offering rates much higher than your typical personal loan. It’s not necessarily a bad thing or predatory act; it’s mainly a security measure they implement due to the volatility these loans present. Payday loans have a history of being used by high-risk borrowers who have a tendency not to pay back debts, the reason they needed to resort to a payday loan in the first place.
Thus, lenders have to consider their bottom line when determining the rate of interest to charge. It’s in their best interest to identify a relatively high interest rate to protect against the higher chances and higher frequency that borrowers won’t pay back their due amount.
These interest rates can add up quickly if a borrower takes out multiple payday loans, especially if the amount is relatively high or up to the CAD$1,500 limit in Canada. The APR or annual percentage rate on payday loans equates to an interest rate in the hundreds. It could become a financial burden if relied upon too heavily or too often, so borrowers must use discretion.
Late Payment Or No Repayment
Not being able to repay a payday loan is a situation to avoid. The loan may be an option in a pinch, but it could become a burden if not taken care of as soon as possible. It may end up costing you because lenders want to get their money back, of course. Not only do you have to consider the exorbitantly high interest rates on your loan being compounded over time, but failure to repay comes with fees as well. You could be hit with a fee for that first. Then, your account could be debited, and as a result, overdrafted by the lender, resulting in more forthcoming fees from your financial institution.
The lender can continue to stack more fees on top of your loan until the remaining balance is paid, making a bad situation almost insurmountable for some borrowers who find themselves in this situation. Lenders could go as far as contacting your friends, relatives, or even your employer to collect on the loan, and eventually hand it off to a collections agency.
Both the lender or the collections agency could choose to go to court over the debt and sue you for it. They could also seize your property or even go the way of wage-garnishing. Word of which may likely reach your employer if it hasn’t already, and your source of income could also be put at risk. All these incidents could be filed on your credit report as well.
Now, while it’s unlikely to get this far in most situations, especially if the dispute is over a few hundred dollars, the possibility is still there. What will usually happen, especially if the lender is rather well-off, is that a collections agency will purchase the debt from the lender at a discount, hoping to collect more than what they paid. Both settle with the outcome and cut their losses.
How To Get A Payday Loan Responsibly
Now that you understand payday loans and the risks that come along with the process, how can you use them responsibly when procured?
Payday loans may be risky business and not your ideal way to obtain financing for anything at all. But in certain situations, you just might need one. Everyone falls on hard times at some point or another, and such loans could help you out if the proper precautions and discretions are taken on the borrower’s part.
Generally, you could avoid all the potential pitfalls of payday loans while still getting access to relatively quick liquidity if you find yourself in a situation where it’s needed. Here are the steps to accomplishing this feat.
Research To Find A Good Lender
Sometimes, you have to do what you have to do. But hopefully, you don’t find yourself needing to settle for a sketchy or subpar lender in this situation. Many payday lenders do engage in predatory lending activities, also known as loan sharking, and seek to take advantage of those who have fallen on desperate times and are in need of cash to support themselves. These are sources you’ll want to steer clear of, and situations to avoid.
The first item to research is checking whether your lender is licensed. All payday lenders must be licensed by a local government body in their area, usually by the province. They must display this license publicly in their physical location. If doing business online, they should make the license visible on their website and show visitors all their credentials.
Check Their Online Security And Legitimacy
Getting a payday loan online is one of the best ways to obtain one, and perhaps one of the quickest ways as well. You can find reputable online lenders fast and easy. But in order to find a good one, borrowers must use caution and discretion.
Because of the fact that payday lending can now be done over the internet—most times without actual human contact or communication—there are plenty of sites out there seeking to scam borrowers out of money. In some cases, even personal information could be acquired, and any other data of value.
It’s relatively easy to set up a website and pretend to loan money. They would simply make it look reputable, talk a good talk, and they’re sure to catch a few wayward borrowers. Avoid such sites at all costs, and make sure your lenders’ site is secure and encrypted. Perhaps as an added technical tip, look for the little lock on the top left corner of your search bar to verify site security.
Furthermore, ensure they’ve established a reputable business and have been doing so for a while. Although there are new lenders who are indeed legitimate, you’ll likely want to go with a lender who has experience and history, especially if you’re trying to secure a payday loan for the first time.
Verify The Financial Details Closely
By now, it’s clear that the first step in the process of obtaining a loan is doing thorough research. You may have done your fair share of searching on Google and even saw interesting ads such as this one: <https://www.youtube.com/watch?v=TTsi27v5G_4>. Once you’ve narrowed it down to a few candidates, you can already compare the pertinent financial details.
First, cross-check the interest rates between your potential lenders to see which one offers the best. It’s deeper than the big number displayed, though. Make sure it won’t be raised exponentially over time, or that those late fees are not very high. Check for specific rules that state these facts implicitly.
While you’re there, it’s also a good idea to read the terms and conditions each one puts forth. This would be referred to as the ‘fine print’ or jokingly referred to as ‘the long pages of stuff most people probably don’t feel like reading.’ However, in this type of situation, you should do it since it may save you a lot of trouble in the future. Some things to look for in the terms and conditions are the fees, the schedules for amount payments, the loan disbursement method, the length of the loan, specified due dates, and the interest rates.
Examine The Lender’s Expectations
Aside from the pertinent financial details, look for any signs of the lender’s capability of going to extremes to obtain their money back should they encounter cases of non-repayment. Of course, you should intend to fully pay back the loan. However, in case you won’t be able to repay the loan on time, you should know what to expect whenever there would be delays from your end.
Furthermore, read customer reviews and look for indicators that your prospective lender works with reputable collections agencies to handle delinquent accounts. Check if they have taken any measures to ding someone’s credit over a small loan or a late payment. Inspect closely if the reviews are real, though, as some companies might be producing fake ones just to raise their online ratings. You could even try to get in touch with some of the reviewers via email or whatever social media platform they used to sign their review.
Understanding the nature and the process of payday loans come down to one advice: Be careful with payday loans and make them work for you.
There’s a saying amongst day traders that goes: ‘Sometimes you play the stock, and sometimes the stock plays you.’ For payday loans, though, that thought isn’t applicable. You can’t play a payday loan, not when the interest rates are that high anyway.
However, you can make the loan work for you. A payday loan can be a great asset if you’ve fallen on a difficult situation and need some last-minute help. There’s a way to make sure it doesn’t play you, and that’s by being extremely careful and taking care of your side of the transaction. Ultimately, do your due diligence on your lenders. Be prepared to repay it on time, and make good use of the loan on something you really need.
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