Many Canadians, or anyone, live from paycheck to paycheck because of high household expenses. Therefore, there will be times when unexpected purchases or bills might be a problem for you. When this situation arises, what’s needed is simply a loan that’ll cover your immediate need for cash and will be paid off on the next paycheck. Whenever this happens, what you need is a payday loan.
What Are Payday Loans?
Before you decide whether or not payday loans are right for you, you first need to know what payday loans are. By nature of its name, payday loans are short-term credit that’s extended to individuals to bridge the funding gap from paycheck to paycheck. This means that the credit terms are just until your next paycheck and will be paid with your upcoming paycheck.
Are Payday Loans Right For You?
The decision if payday loans Canada are right for you will depend on many factors, such as the features, risks, credit terms, and pricing. Here are some things that you might want to take note of when making that decision.
- Minimal Credit Requirements and Credit Checks
One of the advantages of getting a payday loan is that it doesn’t do any credit checking. Therefore, you don’t need a good history of credit or credit scores. In addition, payday loans also require less documentation as compared to personal loans. This means that the approvals for payday loans are very much more lenient as compared to a personal loan, thus it’s easier to get.
For someone who’s experiencing financial instability or difficulty, payday loans might be the best for you. If you don’t have a good credit score, then payday loans will also be a very good alternative for you.
- Interest Rate
The convenience that payday loans provide won’t be free. Due to its nature, wherein no credit checks are required, payday loans bear a higher risk. The higher risk takes into the form of the creditor charging you with a higher interest rate as compared to personal loans from banks.
Thus, as a word of caution, when you avail of payday loans, you have to make sure that you can provide timely repayments since interest fees will pile up very fast. There are times when the interest rate of payday loans in a month is higher than that of a credit card for a year.
- Amount and Duration
With payday loans, you have to note that the amount and duration are small and short. Because the amount and duration will be benchmarked to your salary, the amount you can loan is, more or less, smaller than your salary.
In addition to that, you can only loan it for a month. If you don’t get to repay it after a month, you’ll be charged interest rates at once.
- Speed and Convenience
If you have an urgent need for cash, then payday loans will be very useful for you. Applying for a payday loan is very straightforward and simple. You just need to fill up an application form and submit valid IDs since the loan is just short term. The whole process can be as quick as 5 minutes. After that, the funds will immediately be transferred to your account.
In effect, you’ll be able to get the cash you need quicker as compared to personal loans. Personal loans from banks usually take a longer time due to credit checking and documentation.
- Repayment Method
As mentioned, you’re required to pay the loan on your next payday. The repayment of payday loans is quite different from regular loans. Usually, for payday loans, your creditor will hold your ATM or will have access to your payroll account.
Once your salary comes in, your creditor can deduct the amount from your bank account immediately. Because of this, it’s important to make sure that your payroll account is funded. If you forget to fund it, your loan will get rolled over and the interest fees will just accumulate.
So, this is also one of the factors you need to consider when thinking about getting payday loans.
- Effect on Your Credit
Another matter to note about payday loans is your credit. Applying and qualifying for a payday loan will be listed down on your credit report. However, even though payday loans don’t require you to have a good credit score, payday loans can, instead, affect your credit score.
For example, if you go past due on your payday loan, then that comes out on your credit report. In effect, this could also bring down your credit scores since credit bureaus will see these past due accounts on your credit report.
Alternatively, if you pay your payday loans on time, this can be an opportunity to help you build up your credit score. By building your credit score, you might be able to get credit cards or other loans in the future. Moving forward, payday loans can build good rapport for you.
For personal loans, there are times when you need to put up your property or car as collateral for a loan. Unlike personal loans, you won’t need to set aside your assets to put up as collateral for payday loans.
Payday loans are unsecured loans. In this case, your assets are safe since your creditor can’t run after them. Instead, your creditor will just have access to your payroll account.
You need to know everything about payday loans in order to evaluate if payday loans are right for you. Based on the features listed above and your lifestyle, you’ll be able to decide whether or not payday loans in Canada will help you long term with the financial goals you’re trying to reach in life.
Go through the factors listed above and compare it with your needs to see if what you need is a payday loan.