What is a Payday Loan?
A payday loan is a short term loan used to cover immediate or unexpected expenses and is typically offered to people with a stable source of income. The idea is to get the loan as soon as you want it, before your payday, and pay it back on your next payday. Getting a loan for more than 30 days could depend on your arrangements with the payday lender. The amount to borrow also differs but the average payday loan in Canada is about $280, although you could request for up to $1,500. Failure to pay back this loan on the agreed date could result in more fees and interest charges that would increase your debt.
What to Expect When You Take a Payday Loan
Before applying for a payday loan, ensure you meet the following requirements:
- At least 18 years of age
- A government-issued ID or a social security number
- A stable source of income
- An active bank account
- A permanent address
Requests from the payday lender:
- A form to allow the lender to withdraw the exact loan amount from your bank account, including fees and interests.
- A post-dated cheque for the total loan amount.
- An agreement from the lender that contains all the details for you to sign.
Are Payday Loans a Better Option?
There are a lot of arguments surrounding whether payday loans are safe or not. While advocates argue with the fact that it helps people with poor or no credit scores, others object with the fact that it traps people into debt. However, it depends on perspective and how the loan is being managed.
A payday loan is meant to cover up for unexpected costs and not for things that can be avoided or kept for later. Payday loans are easier to access and have fewer requirements compared to bank loans and other kinds of loans. You also do not have to worry about your credit score and it is not in any way secured by personal property, so you can worry less about losing your property.
To be on the safe side and ensure you don’t run into debt from taking payday loans, you can review the free financial education materials from the Canadian Payday Loan Association. Also, ensure you pay the loan off on the due date to avoid further costs.
Risks of a Payday Loan
While payday loans are easier to get, the fees and interest rates are much higher than banks, credit unions, and credit cards. Exceeding the payment deadline would incur a higher rate, as the lender could add late fee charges and interest for the days post-deadline. The lender could also contact a collection agency, of which an action from them could affect your credit score. It could also lead to a court sitting.
While there are so many platforms and agencies available to lend you money, you have to be careful with the one you affiliate yourself with. A little mistake in your payday loans could keep you in unexpected debt. Accessing payday loans in Canada, for example, is an easy and fast way to go about it. While no platform can guarantee 100% security, signing up with the best-recommended ones would reduce security risks and save you from incurred debts.