Winter holidays are expensive. Let’s assume you are reading this because you’re thinking about looking into payday loans in Canada. If this is you, count yourself among the tens of thousands of Canadians who probably need money in a pinch to cover unexpected expenses in a hurry. For many, payday loans have been the lifeline needed to tide them over in an emergency. Yet, this form of lending can lead to financial trouble if the borrower is not completely informed.
Why do so many people choose payday loans in Canada over conventional loans? Read further to learn why there are two sides to the story. In this article, we will answer this question and explore other subjects, such as:
The number of people who do not have money in the bank for emergencies is staggering. Many average working people live paycheck to paycheck. For these Canadians, a payday loan is like a lifesaver to a drowning person-it gives them that “saved in the nick of time” feeling in a financial sense.
Payday loans in Canada draw people because:
Payday loans in Canada are another type of unsecured loan, meaning no property is put up to guarantee repayment. The amount borrowed is relatively small, unlike the amount borrowed for an auto loan or mortgage loan. Basically, all you need is proof of who you are, where you live, and your checking account numbers. Sounds simple, right? It could be, but before you apply learn more about this form of lending.
Cash advances and payday loans share several of the same characteristics. They are both unsecured loans, and you will pay a high premium in the form of interest rates and fees. In some areas, the terms ‘cash advance’ and ‘payday loan’ are used interchangeably to mean the same thing. But we will list what the differences between the two can mean. For instance,
In Canada, payday loans are regulated as to the amount they can charge in interest. This is necessary in order to prevent usury (pronounced sir ree), which means charging excessive rates for loan interest. In Canada, some areas outlaw payday loans completely. Others restrict lending practices.
Payday lenders must comply with current legislation, which varies depending on the province. In Canada, these loans are governed within the individual provinces. You would benefit greatly by researching what the rate limits are in your area before applying for a payday loan. You will be surprised how different the rates can be among the provinces.
In the end, only you can answer this question. But we have taken it upon ourselves to provide you with some things to think about that may influence your decision. A payday loan may be in your future if you:
We use the phrase “may be in your future” because, although the majority of payday loan borrowers meet the criteria above, some have lived to regret the decision. Because, although they were bailed out of the situation in the short term, over time they discovered other solutions would have been better. We’ve chosen “Cautionary Measures” as our next topic because when it comes to payday loans in Canada, caution is the word of the day.
We’ll use the fictional borrower named Broke Ben to illustrate how a payday loan can end up putting a borrower in worse shape than when he started:
One morning, Broke Ben went to his car to go to work, only to find that two of his tires were flat. Cursing, he looked in his trunk to discover the one spare tire he had was also flat as a pancake. Knowing he had no money and was five days away from a paycheck, Ben decided to take out a payday loan to buy four tires for his car.
Ben goes online and finds a payday lender who approves him for $500. He buys tires and returns to work. The next payday he is unable to pay the loan in full. The lender lets him pay the interest only. The loan, plus fees and interest, come due on his next payday. The interest has gone up because more time has passed since the loan was approved.
Over the next few months, the more he owes, the harder it is for him to pay. Sadly, Ben has found himself in an expensive debt cycle and struggles to get out. To get a better outcome, Ben could have taken the following precautions:
Ben fell into a trap that may have been avoided if he did not rush the process. For instance, could he have gotten a ride to work from a coworker until payday, when he could buy tires? Or maybe he could have asked his employer for a cash advance on his paycheck. Friends or relatives may have also been willing to help. The point is, there are other possible options if you prefer not to get a payday loan.
Not every transaction with payday loans in Canada turn out to be a nightmare. For those who must use them, the best thing to do is make sure you can repay the amount of the loan on the day it is due. Also, research long and hard about the company and what they are charging you for the loan. Although you will still pay high interest, paying the loan off will save tons of money, time, and headaches.