Payday Loans for Holidays

Dec 18, 2016 by Smarter Loans Staff

Personal Loans Payday Loans

Holiday Payday Loans in Canada

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:

What’s the Attraction of Payday Loans in Canada?
Cash Advance…Payday Loan-Are They Different?
Rules and Regulations of Payday Loans in Canada
Is a Payday Loan for You?
Cautionary Measures

What’s the Attraction of Payday Loans in Canada?

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:

They are available to people who have bad credit
Most often, no credit check is needed to apply
Borrowers get quick access to money, sometimes almost instantly
You can just provide a little information when you apply and the money is yours

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 Advance…Payday Loan – Are they different?

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,

Most likely, if you’re going to your employer directly to borrow money on your future earnings, you are asking for a cash advance. Not all employers offer this, and those that do normally don’t charge interest.
Pay day loans, however, are offered by retail locations, either online or a brick and mortar store. While you are still asking to borrow against future earnings, you will most likely have to write a postdated check for the amount of the loan and fees. Repayment is expected by your next paycheck. If not, the cost for borrowing becomes extremely expensive.
If you are using a credit card to withdraw money rather than make purchases, this is also a form of a cash advance, and costs lots of money too.
If you are getting loans from friends and family telling them you will give it back when you get your paycheck, this can be considered a payday loan. Repayment terms are up to the lender, and are probably based on how you paid them back the last time.
If you are not required to have a credit check, and the amount you can borrow is relatively small (say, $1000 maximum), you are probably asking for a payday loan.

Rules and Regulations of Payday Loans in Canada

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.

Is a Payday Loan for You?

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:

Have encountered an emergency that can’t wait until your next paycheck
Are unable to qualify for a personal loan from a bank or other financial institution
Do not have savings or other means to cover the expense (like relatives or friends)

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.

Cautionary Measures

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 could have resisted the temptation to jump into a commitment of a payday loan before being absolutely sure he understood the interest rate and fees he would be charged.
Since he missed work that day anyway, he could have used that time to research the laws in his area about payday loans. As it turns out, he had two business days to reconsider the loan and cancel, which would have given him time to explore other options.
Ben should have made sure he was dealing with an actual licensed payday lender. The website he went to was what is known as a “lead generator”, companies that get personal information and sell it to actual payday lenders. He put his identity at risk.

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.

Smarter Loans Staff

The Smarter Loans Staff is made up of writers, researchers, journalists, business leaders and industry experts who carefully research, analyze and produce Canada's highest quality content when it comes to money matters, on behalf of Smarter Loans. While we cannot possibly name every person involved in the process, we collectively credit them as Smarter Loans Writing Staff. Our work has been featured in the Toronto Star, National Post and many other publications. Today, Smarter Loans is recognized in Canada as the go-to destination for financial education, and was named the "GPS of Fintech Lending" by the Toronto Star in 2019.