It can happen to the best of us: we pay our bills on time every month, but a surprise expense pops up that we may not be able to fully cover.
With all of life’s expenses, sometimes it can be tough to keep enough money leftover for a rainy day. And when that rainy day comes, we may struggle to come up with the funds needed to make an unexpected payment.
Luckily, there are financial tools available to Canadians that make money available in the form of a loan. With these loans, we can borrow the money required to pay off whatever expenses we might have. There are plenty of different loans types out there, and payday loans are one of them.
A unique type of loan, payday loans are meant to help consumers out of a last-minute situation, providing quick funds that are then required to be paid back almost as quickly.
Read on to find out more about payday loans in Burnaby and whether or not they’re appropriate loan type for you.
When it comes to payday loans, it’s important to know your rights! Check this out.
What is a Payday Loan?
A payday loan is a loan which is usually made for a small amount – usually for no more than $800 to $1,000. Rather than being paid back in installments, payday loans are usually repaid in full in one single payment.
These types of loans are typically very short-term in nature and are typically paid back by the time the borrower gets their next paycheck, which is why they are named as such.
Payday Loans vs. Installments Loans
Payday Loan Rules in Burnaby
Payday loans have developed a bad reputation over the years. Many lenders have taken the liberty of charging borrowers sky-high interest rates in an effort to profit. As such, the government has stepped in to try and protect borrowers from potentially predatory lenders.
By law in Burnaby and the rest of the province of British Columbia, payday lender must follow these
- Publicly advertise the cost of their payday loans
- Cannot charge any more than $15 per $100 borrowed, which is the equivalent to an annual interest rate of 391%
- Allow you to repay the loan over two or three pay periods if this is your third payday loan from the same lender over the last two months
- Cannot provide you with more than one loan at a time
- Cannot rollover an existing loan into a new one
- Cannot make you purchase loan insurance
- Cannot make you pay for the loan upfront
Payday Loan Interest Rates and Fees
As already mentioned, payday loan rates can be in the three-digit range. More specifically, they can be as high as 391% in BC legally, though some predatory lenders may try to force much higher rates on their customers.
Payday lenders might also have their own set of fees that they charge on top of interest, such as fees for a dishonoured check or pre-authorized debit. It’s important to look at the fine print of the contract so you’re fully aware of all the fees charged and the overall cost of the loan.
How much do payday loans really cost? Click here to find out.
Beware of The Payday Loan Cycle
While payday loans may be able to help cover a last-minute expense, they can also be a trap that many borrowers find themselves unable to get out of.
Payday loans are known to come with extremely high-interest rates, typically in the three-digit range. They must also be paid back in a very short amount of time, leaving borrowers scrambling to come up with the funds to repay their loan. And with the sky-high interest rates that come with these loans, borrowers end up having to pay back a lot more than what they initially borrowed.
In the event that there’s not enough money yet to pay the loan back, many consumers are left in a position to borrow another “rollover” loan to extend the loan and provide more time to repay what’s owed. Unfortunately, this simply adds to the debt pile, making it very difficult for borrowers to ever pay off the full amount they owe.
The cycle can continue for a long time, increasing the debt load and making it very difficult for borrowers to get out of the payday loan cycle for good.
Check out this infographic for even more information about the payday loan cycle.
How to Break Out of the Payday Loan Cycle of Debt
If you find yourself trapped in a payday loan cycle, consider other loan options rather than continuously taking out more and more rollover payday loans.
Personal loans. There are other, safer loan options available, including personal installment loans that are much more affordable and easier to pay off. With a longer repayment period and an installment payment plan, paying off a personal loan can prove to be much easier compared to a traditional payday loan in Burnaby.
Personal loans are different from payday loans in many ways, including the following:
- Repayment terms – Personal Loans are paid back in installments rather than in one lump sum as is the case with payday loans.
- Interest rates – Rates associated with payday loans are far higher than those that come with personal loans.
- Repayment time frame – You have much more time to repay a personal loan – from a few months to over a year – compared to just two weeks with a payday loan.
Credit counselling. You might also want to consider seeking out help from a credit counselling agency that will help you better manage your finances and educate you on how to come up with a workable budget that will make it easier for you to pay down your debt.
Debt settlement. If your debt is out of control to the point that a new budget won’t help much, consider seeking out a debt settlement service. These agencies can help you settle your debt in some way so that you have less debt on your plate to pay down.
Payday Loan Alternatives
There are plenty of other options available to consumers who may find themselves in a financial pickle, including the following:
Installment loan. As already mentioned, an installment loan can be easier to repay thanks to their longer loan repayment periods and their installment payment options. Installment loans also usually come with much lower interest rates, making them a more affordable option compared to traditional payday loans.
Vehicle title loan. If you own a vehicle outright and no longer have a car loan to pay off, you may be able to use your vehicle as collateral for a title loan. In this case, the lender would provide you with a loan in exchange for placing a lien on the title of your car. When the loan is repaid, the lien is removed.
Home equity loan/HELOC. If you’re a homeowner, any equity in your home may be used as a loan source for funds required. As long as you have at least 80% equity in your home (which is the property’s value less any loan amount still owed on the mortgage), you may be eligible to borrow against your home and use your home to secure the loan.
Predatory Lenders: The Warning Signs
While there may be a number of legitimate payday lenders, there are also plenty of predatory lenders out there who prey on consumers. Be sure to get familiar with signs of these types of lenders in order to steer clear of them.
Here are some red flags to look out for:
- They guarantee approval
- They require that an upfront insurance fee is paid
- Their interest rates are through the roof
- They promote “rollover” loans in case you can’t pay them back the first time around
Is a Payday Loan Right For Me?
Payday loans are very rarely the right choice. That said, there may be a serious emergency that needs attention, and the funds from a payday loan may help. Considering how quickly you can obtain the funds from this type of loan, a payday loan might be a good way to get access to emergency funds required.
As long as you are certain that you will have the money to pay back the loan in two weeks, then perhaps a payday loan can be considered.
For everything, you need to know about debt relief for payday loans, click here.
Situations Where a Payday Loan is a Bad Idea
In most cases, payday loans should not be considered. Instead, other loan options should be sought. Here are some scenarios where a payday loan might be a bad idea:
- Your monthly bills are already using up your monthly income
- You need extra money to cover an unimportant expense
- Your income is not stable
Debt Relief Options to Consider
If you find yourself in a dire financial situation that you can’t get out of, you may want to seek out more drastic measures to alleviate you of your debt.
Rather than continuously taking out payday loans, there are specific debt relief options available to help you finally get rid of your debt. The option that you choose will depend on how much debt you have and the type of debt that you carry, and can include:
Debt settlement – With this option, a representative from a debt settlement agency would negotiate with your creditors on your behalf to reduce or eliminate all your debt owed. Rather than your debt being considered paid, it will be considered “settled,” which is what will show up on your credit report.
Debt consolidation – You can make your debt more affordable by consolidating it. In this case, you would take out one large loan at a lower interest rate than your highest-rate debt to pay off all your outstanding debt. You’ll then be left with one large loan that’s both easier to manage and more affordable.
Consumer proposal – With this option, you would submit a proposal to your creditors to relieve you of your debt. Your creditors must agree to this proposal in order for it to take effect.
Bankruptcy – This is a last resort option and involves you surrendering many of your valuable assets in exchange for being completely relieved of your debt.
Interested in what factors affect your credit score? Click here.
What Credit Score Do You Need to Get a Payday Loan in Burnaby?
While many loan options typically require your credit to be checked, such is not usually the case with a payday loan. That’s why they’re so easy to get approved for. Rather than looking at your credit score, lenders will only check out your income and bank account.
Applying For The Right Loan
If you’re in need of fast cash in Burnaby, a payday loan might be an option. However, it’s important that you assess what you need the money for and weigh it against the costs of a payday loan before you apply. If you’re in need of a loan, call Loans Canada today to help you determine which loan option is best for you.