Many Canadians find themselves in a financial predicament from time to time. Whether their paycheck came in a couple of days after a loan payment was due or they simply lose track of their finances, debt issues can sometimes get the better of us. And in some cases, a loan may be necessary to quickly deal with expenses that need to be covered immediately.
While there are plenty of different types of loans out there, payday loans may seem like the right option for certain consumers who find themselves in dire need of extra funds. They’re quick and easy to obtain, and approval is usually not much of an issue.
Let’s take a closer look at payday loans in Saskatoon to help you determine if they’re the right loan option for you.
10 questions you need to ask before you take out a payday loan, click here.
What is a Payday Loan?
Payday loans are short-term loans that are designed to provide consumers with a quick hit of cash within a very short time frame. The loan amounts are usually very limited; generally speaking, no more than $1,500.
Unlike traditional installment loans, payday loans must be repaid in one lump sum, including interest. There is no option to pay in installments. Instead, the entire loan amount must be fully repaid by the due date, plus any accrued interest.
Generally speaking, payday loans must be repaid once the borrower receives their next paycheck, which is usually within two weeks. This is why payday loans are named as such. However, in Saskatoon, the payment due date can be as long as 62 days, though no longer than that.
Interest Rates and Fees on Payday Loans
In order for lenders to profit off the loans they provide, they need to charge interest on the loan amount. The higher the rate charged, the more expensive the loan will be.
When it comes to payday loans in Saskatoon, you can expect to pay very high-interest rates. In fact, the rates charged on these types of loans are generally the highest in the industry and are often in the three-digit range.
It’s important to understand the annual interest rate of payday loans before taking one out. Even credit cards – which are notorious for having really high rates – can be a lot cheaper than payday loans. For example, being charged $21 for $100 borrowed – which is typical for a payday loan – works out to 546% per annum, which is a lot more than a typical 26% per annum credit card.
There are also other fees to consider, including fees for pre-authorized debit, administration, and fees for dishonoured checks. Make sure you understand the interest rate and all the fees associated with the payday loan you’re considering.
Beware of the Payday Loan Cycle
Since the interest rate charged on payday loans in Saskatoon is so high, you will end up owing a lot more than the loan amount you applied for. And because the loan amount must be paid back so soon after taking it out, it may be difficult to come up with the full amount by the due date.
If you find yourself in this situation, you might consider taking out another payday loan to pay off your first. This can get you stuck in a payday loan cycle which can be very difficult to get out of.
Otherwise known as a “rollover loan” – because you’re essentially rolling the old loan amount into a new one – these loans will continue to increase with every month that passes. And if you continue to take out loan after loan, your debt will continue to rise until you’re at a point where you are no longer able to keep up with your payments. At that point, you may find yourself needing outside help with your debt.
For more information about the cycle of debt that payday loans create, click here.
Alternatives to Payday Loans in Saskatoon
Considering the potential risk you could be facing with a payday loan, you may want to consider alternatives, including the following:
Personal installment loans – Rather than putting yourself in a situation where you have to pay off the loan amount in one lump sum so quickly, an installment loan may be a better, safer option. With this type of loan, you’ll have a much longer amount of time to repay the loan. You’ll also be able to pay a little at a time instead of all at once. Further, you’ll be charged a much lower interest rate, making the loan more affordable.
Vehicle title loans – These loan options are available to those who own a vehicle and no longer owe anything on them in terms of a car loan. If your car is fully paid off, you might be able to use the title in exchange for a loan. The lender will provide you with a loan amount in exchange for putting a lien on the title of your car. Once you pay off that loan, the lien will be removed.
For more information about title loans, check out this article.
HELOCs/Home equity loans – if you’re a homeowner, you may be able to use your home’s equity to tap into for a loan. In order to qualify, you need to have at least 20% equity in the home. Equity is the amount you have in terms of the property’s value, less what you owe on your mortgage. So, if your home is worth $500,000 and you still owe $300,000 on your loan, you have $200,000 in equity.
Credit cards – it’s not usually recommended to use a credit card to cover a very large expense because the interest rate is usually very high. Further, spending close to your credit limit can have a negative effect on your credit score as well.
That said, it may be a better alternative to a payday loan. So, if you’re in dire need of extra money, your credit card may be a better option than a payday loan.
Assistance With Your Mounting Debt
If you’re having trouble keeping up with your debt payments or have found yourself stuck in a payday loan cycle, you might need some outside help. Luckily, there are several products and services available to help:
Debt relief services. These services can help you alleviate your debt by teaching you what you need to do to properly budget in order to pay down your debt. The service can help you set up a workable budget, which can help you allocate your money properly and free up more money needed to pay down all your debts.
This service can also help you arrange for debt consolidation, whereby you take out a large loan at a much lower interest rate compared to your highest rate loan in order to pay off all your other loans. Not only will this make things easier for you to manage, but it also helps you save money by drastically cutting down the interest-rate that you pay.
Credit counseling. Working with a credit counselling agency can also help by educating you on better practices to manage your finances more effectively. This can help reduce your debt. Your credit counsellor can also help you reduce your debt load by negotiating with your creditors on your behalf in order to eliminate interest charges, which can help reduce your overall debt.
Everything you need to know about managing debt, click here.
Debt settlement services. If your situation is severe and you are unable to make any strides as far as relieving your debt is concerned, you may be closer to bankruptcy. Bankruptcy is a last resort, as it can have a detrimental effect on your credit score.
Before you consider bankruptcy, you may want to consider working with a debt settlement company first. These professionals will help settle your debt with your creditors so you’re either left with a much lower outstanding loan amount or have your entire debt load eliminated.
It should be noted, however, that debt settlement will have a negative effect on your credit score since it will be noted on your credit report that your debt was settled rather than paid. That said, the effect on your score will be much less than the impact that bankruptcy or consumer proposals would have.
Protect Yourself Against Predatory Payday Lenders
While most payday lenders out there are generally reputable, many are not. Be sure to steer clear of these lenders by paying attention to any one of the following red flags:
- Guaranteeing loan approval
- Requiring an insurance fee to be paid upfront
- Encouraging rollover loans to pay off previous loans (which can get you sucked into a payday loan cycle)
Knowing your right as a payday loan borrower is important, take a look at this article.
Should You Take Out a Payday Loan?
Considering the high risk of getting yourself into a neverending payday loan cycle, these types of loans are not recommended unless you are absolutely in dire need. There are plenty of other options available instead.
However, if you need quick cash right away, a payday loan could help. They’re easy to apply for, and the approval process is lax. The funds are typically provided right away, making payday loans convenient when quick access to cash is needed.
Just be wary that the funds must be paid back in full in one lump sum within a short time frame and come with a very high-interest rate.
When is it Not a Good Idea to Take Out a Payday Loan?
For the most part, payday loans in Saskatoon should be your absolute last resort. More specifically, there are certain situations in which payday loans should be avoided altogether:
- You’re maxing out your credit cards to cover other bills
- Your monthly income can’t handle all your bills
- Your income is not stable or reliable
- You just need a few extra bucks to cover a non-urgent expense
Credit Score Needed For a Payday Loan in Saskatoon
Lenders typically like to see credit scores of at least 650 to 680 for conventional loans. But for payday loans, the credit requirements are less stringent. That’s why these types of loans are so easy to get approved for.
Payday loan lenders look more at your income and bank account rather than your credit score when determining your ability to get approved. So, even a bad credit score may be fine as long as you have the income to support your payment.
Need a Loan For a Pressing Expense?
Payday loans may be an option, but there are many other products to consider. Regardless of what you need the money for, Loans Canada can help you gain access to quick cash. Call Loans Canada today!