Payday loan processes and how to pay them off quickly
Almost 2 million Canadians rely on payday loans for survival. The number is fueled by the fact that they live from one paycheck to the other, which means money often runs out before they receive the next paycheck. The situation also makes it very difficult to save some money, and when an emergency arises, the people cannot handle it without taking a loan. To most people, these loans are lifesaving, but the reality is, they create more financial burden on the borrowers.
So, what exactly is a payday loan?
These are short-term loans that are also called Cash Advance Loans. They usually come at very high-interest rates and fees that may make them harder to pay back. The charges associated with the loan increase when it is not paid on time, which means borrowers must time their paychecks carefully to ensure they don’t miss it.
It is possible to increase a payday loan term up to 62 days, but that number may be lower or higher in some provinces. Known as rollovers, the extensions also accrue additional charges.
Despite the high fees, payday loans usually provide relief when faced with difficult financial situations unexpectedly. However, they should only be taken under desperate circumstances to avoid a never-ending cycle of debt.
How payday loans work
These loans are not very difficult to get, even though they don’t have official known lenders. They can be accessed in-store and online through electronic transfers.
In-store payday loans
Some of the documents needed for in-store locations include proof of regular income, bank account information, and permanent address. Since only adults can access such loans, identification proof is also needed. Some lenders ask for references that can be contacted in case of a default, and the borrower is unreachable.
Some lenders also ask for additional information like:
- A contract allowing them to withdraw the principal loan amount, together with the accrued fees and interest from your bank account when the loan term is due. This is sometimes known as pre-authorized debit.
- A cheque dated the same time the loan is due. It should cover the total loan amount.
After providing all the necessary documents and getting approval from the payday lender, they will deposit the money directly to your account or give it as a cheque or cash. Some, though rare, give the loan on a prepaid card, but it requires additional charges.
The signing of the loan agreement is also included in the payday loan acquisition process. It includes a lot of details, such as related costs like interest, loan fees, and the due date. Read the agreement carefully before signing, and ask questions regarding doubts or concerns you may have. If you are unsure, double-check the information regarding payday lenders at the Canadian government’s website.
Online payday loans
Accessing the loans online may seem like a more convenient option, but most of the lenders operating online are not licensed. It is also easier to be duped online because such lenders don’t adhere to the rules set by the provincial government. For better protection, deal with lenders that are licensed only. Their status is available on the provincial affairs office website.
Paying attention to the source of e-transfers also helps prevent problems. Resolving issues with lenders outside Canada is more complicated and sometimes impossible.
Payday loan illustration
A payday loan may seem like an easy solution, but it can cause a lot of problems to borrowers — understanding how the loans work can increase your safety, especially regarding the fees associated with them. For example, if you take a $300 loan and it comes with a 15% interest for every $100, you end up owing an extra $45 within the week. If you fail to keep up with the terms, you get penalties that increase the amount to $400. Taking another loan to pay for the current one only leads to more expenses.
Possible benefits of payday loans
Managing expenses is usually challenging for most people who live from paycheck to paycheck. The rising cost of living makes life more difficult, creating the need for immediate access to funds during emergencies. In most cases, getting these loans only involves providing the right information, filling out the required forms, and just like that, you’ve got the money.
Credit history does not matter
Getting a loan from traditional institutions requires that applicants prove their creditworthiness, which takes a lot of time. Payday lenders don’t care whether the credit score is good or bad.
They are renewable
It is always possible to renew the loan if it is due and your financial situation has not improved. The fees may increase, but you will have enough time to get your funds in order.
It’s possible to get top-ups
Various states have rules regarding the maximum percentage of the paycheck that a lender can give in advance, and payday lenders can top up that amount.
Disadvantages of payday loans
These loans are calculated bi-weekly instead of annually, which increases the loan tremendously.
Limited cash access
The loans range from $300 to $1,500, which may be insufficient for most people.
Borrowers are usually required to pay the loan with the next paycheck, which gives 30 days or less. The term can be extended, but only for a limited number of times.
Payday loans cannot be paid in instalments, which may constrain your budget more.
Failing to pay the loan will lead to a poor credit score.
Borrowing from multiple lenders will increase the debt burden.
Paying off payday loans
The following ideas can help you pay off your payday loans for good.
- Getting an extended payment plan to pay off the loan in full
- Selling items that are no longer usable and getting a different source of income
- Using the available money to offset the loan, even if that money was meant for something else
- Seeking financial assistance from friends and family members
- Searching for a debt consolidation program
Considering payday loan alternatives
Trying to get the money from other sources like a second job is always better than a payday loan. Other options that may be helpful include:
- Asking an employer for an advance payment
- Looking for nonprofit and charity organizations
- Getting a line of credit
- Borrowing from a credit union
- Getting a credit card cash advance
Getting advice from experts
If you would like to start reducing your debts, get an expert to advise you and tips from YorkCredit today. The earlier you clear your payday loan, the better your finances will be because you will not have to deal with high interest and excessive charges.