Does it ever happen to you that an unexpected expense arises abruptly and you don’t have enough money to cover it? If yes, what would you do in this situation? The first thought that probably comes into your mind in such conditions is to borrow money. For this purpose, there are many options to go for.
One of them is to opt for Payday Loans, also called “Cash Advance Loans.” If you want to know details like, “What is this? How does it work?
What is Payday Loan?
It is a short-term installment loan that gives you relief from most of your expenses. But, the interest rate is very high, and you have to pay back debt within a short time of 2 weeks. The maximum amount you can borrow is $1,500. Before getting a payday loan, the receiver must have a bank account and provide information about his/her income.
Payday loan companies usually charge up to $15 if you get a loan of $100. In other words, if you borrow $100 in time of need, you will be asked to pay back $115. This interest rate of 15% is significantly higher compared to many other types of credit. You can understand this from an example:
Suppose your feline friend needs a vet appointment, which costs you approximately $300, and you don’t have enough money. Therefore, you decide to take out a loan of $300 for 2 weeks. After this period, you have to pay $45 in interest charges (i.e., $15 for every $100 borrowed), which is estimated to be an annual interest rate of 390%!
Usually, you can get a payday loan from any province or state of Canada. Remember, costs and rules vary in different provinces as every state has its regulations.
Legal Status of Payday Loan in Canada
Section 347.1 of the criminal code permits payday loans under some strict rules and regulations. All the payday loan companies and lenders in Ontario should have the Ontario Ministry of Government and Consumer Services license. They are ordered to show their license in companies and online.
Where can you Get Payday Loan?
You can take out a payday loan from the following provinces of Canada with a flexible limit of up to 62 days to pay it back:
- Nova Scotia
- Prince Edward Island
- Newfoundland and Labrador
- British Columbia
- New Brunswick
How to Get Payday Loan?
Many private firms give payday loans to companies online through an e-transfer to your given bank account. If you want to know further details,
Method to Get Payday Loan In-Store
First of all, you will have to give them the following information after arriving at the payday loan company:
- Your monthly income
- Information about bank account
- Authentic and permanent residential address
- Your driving license
- Information like name and contact etc.
In addition to all these requirements, a government-issued ID is needed to prove that you are 18 years older and can get a loan. Another important thing is to give them a reference, which will be contacted in case of any problem.
After this, payday lenders will guide you about the following requirements:
- You have to fill out a form that will permit the lender to draw out the loan, plus fees, from your given bank account when the loan is due (also referred to as a pre-authorized debit).
- Another great idea is to provide a post-dated cheque for payday loans and fees.
What is the Downside of Payday Loan?
A payday loan usually puts you in an unending cycle, a cycle from which escape is very difficult or impossible. Just imagine, you have no money left for any particular expense, and there are also no savings to deal with such a situation, and eventually, you get a payday loan.
This will give you short-term relief, but it will be more challenging to pay back your loan, that’s why experts always suggest going for responsible lending. You pay off your previous payday loan and need to take out another loan to deal with a money crisis until you get your next paycheque 15 days later. This cycle continues for a long time. It becomes almost impossible to get rid of it as you have to take a loan repeatedly.
Therefore, it’s best to think twice before taking out a payday loan. If you are very optimistic that you can quickly pay back the loan within two weeks, you should go for it. If not, don’t try to take the risk. Otherwise, your financial condition could get worse day by day. Your borrowed amount will continue increasing, and you will end up paying a bundle of money within a short time.
What are the Consequences if you can’t Pay back a Payday Loan at a given Time?
You will have to face severe consequences if you don’t pay it back within 2 weeks. Well, it depends on the laws in your country, but in Canada, these consequences are following:
- The total borrowed money plus fees will continue increasing.
- The payday loan company could contact your family or friends to get their money, and that’ll not be very pleasant for you.
- The company can take hold of your property.
- They can take you to court to get their money back.
So, if you can’t pay it back within time, it is preferable to get stuck in a debt trap.
Alternatives of Payday Loan
The alternatives we discuss in the following are the best substitutes for a payday loan. Let’s have a look at them:
You can Ask your Boss for a Pay Cheque in Advance
Many companies have policies to help employees with advanced paycheques, mainly old and trustworthy employees. So, you would go for it.
Take a Loan from any Friend or Relative:
One of the best alternatives to payday loans is to borrow the required money from family or friends. You can get a loan by making sure that you will return it within a specific time. In this way, you don’t have to face a strict deadline to return the money.
Get a Line of Credit
Many banks can also help you with a fixed amount of money you have to pay within a particular time. The reasonable interest rate of bank loans and lines of credit range from 3% to 50%; it’s very affordable than a payday loan.
Sell your Property
The last and least recommended option is to sell your property. Usually, you don’t have to do this, but if you are not left with any other choice, you can sell your property in a difficult time to meet your needs. In the future, when your financial condition becomes stable, you can again buy it.
After reading the article, do you still think that payday lenders are helping Canadians to deal with a difficult situation?
No, in fact, such exploitative businesses are quickly making their money by taking full advantage of helpless people with little or no borrowing alternatives.
So, it is advisable to go for the other options discussed above.