Can You Get A Payday Loan Via A Prepaid Debit Card?

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Can You Get A Payday Loan Via A Prepaid Debit Card?

Written by Bryan Daly
Fact-checked by Caitlin Wood

Can You Get A Payday Loan Via A Prepaid Debit Card?

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While banking technology is always evolving to be more inclusive, a surprising amount of people still can’t qualify for a basic bank account. In fact, according to a study done by ACORN Canada, about 3% – 15% of our residents are “unbanked” or “underbanked”, meaning they have little to no connection with any of the country’s financial institutions. 

Unfortunately, not all of those residents are lacking a bank account by choice. Millions of them are simply getting turned down. Luckily, if you’re dealing with a similar financial crisis, there are ways to access fast cash, like payday loans with a prepaid debit card.

Check out the difference between a prepaid credit card and a secured credit card

What Are Prepaid Debit Cards?

A prepaid debit card is similar to a normal debit card, only it has a specific amount of money preloaded on it, rather than the funds coming straight from your chequing account. Many different financial institutions and businesses offer these kinds of cards as products or bonuses. Once the card funds are used up, the card can be reloaded or disposed of.

Find out if a hybrid bank account is right for you.

What Are Payday Loans That Use A Prepaid Debit Card?  

A payday loan is a small high-interest loan of $100 – $1,500 and a short repayment term of 14-days following the transfer of funds. While these loans are usually given by direct deposit, cash or cheque, many payday lenders now offer debit cards specifically for customers who don’t have bank accounts or are simply looking for more convenience. 

Need cash quick? Check out e-transfer payday loans.

How Does It Work?

As mentioned, a prepaid debit card comes preloaded with a specific amount of money. Just like a normal debit card, you can spend the funds on anything you need. However, unlike your regular bank account, you’ll have to repay the funds, plus interest and fees by a predetermined due date or be subject to certain penalties. 

Most payday lenders will request a VOID cheque or pre-authorized debit form when you apply. This would normally allow them to deposit the loan directly in your account but in this case, it’s so they can withdraw the amount you owe automatically from your account on the due date. 

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Different Ways Of Getting A Payday Loan

In Canada, there are several common methods for receiving a payday loan, such as:

  • Online – Most payday lenders now have websites where you can apply using your normal debit card. Typically, the funds are then deposited directly into your bank account within 24-hours (sometimes within the hour). More often than not, this is the fastest and most convenient way to get a payday loan. 
  • In-Store – Payday loans are now banned in some regions but you can still find physical stores all over Canada. Here, you can go through the same application process and collect your loan in various forms, usually within the same business day. Most consumers find this to be the slowest and least convenient option. 
  • Prepaid Debit Cards – Payday lenders sell prepaid debit cards mostly online and sometimes in-store. If you apply online, your card will be mailed to you shortly after. While you can get one without a bank account, it can take about 1 – 3 days to receive the card, which may not be great for financial emergencies. 

Benefits Of Receiving A Payday Loan Via A Prepaid Debit Card

Despite their downsides, payday loans with a prepaid debit card can come with some notable benefits, including but not limited to:

  • No Bank Account Needed – The best thing about payday loans with a prepaid debit card is that you don’t need a checking account to qualify, which is great if you aren’t affiliated with a bank or don’t want to risk your existing account.
  • Fast And Easy Funding – If you’re not in a rush, a prepaid debit card can be an easier way to shop or pay bills online, over the phone and in-store. You can even reload the card with another loan or use it to withdraw funds from an ATM
  • Direct Deposits – Depending on which kind you have, a prepaid debit card can carry all sorts of payments, not just payday loans. That means you can access the money from a paycheque, benefit plan, or tax refund by direct deposit onto your card. 
  • Access To Rewards – When used enough, some prepaid debit cards come with financial benefits, like cash-back dollars, bonus points and insurance. However, this also depends on what type of card you apply for and where you get it from.
  • Bad Credit Is Accepted – It can be tough to qualify for any financial product or service if you have a bad credit score (300 – 600). But payday loans do not require a credit check, therefore consumers with bad credit can typically get approved.

Risks Of Receiving A Payday Loan Via A Prepaid Debit Card

All benefits aside, don’t forget that payday loans come with a few serious financial drawbacks, even when they’re given to you on a prepaid debit card: 

  • High-Interest Rates and Fees – The riskiest thing about payday loans is that they come with extremely high-interest rates upwards of 300% – 600% APR. As well as many different service fees, such as loan origination and documentation. This could make your loan very expensive and not worth the potential damage to your financial health. 
  • Short Repayment Periods – The average payday loan term is only 14-days after receiving the funds. While some lenders offer longer plans, this can be especially dangerous if you borrow money frequently and your lender allows “rollovers” (borrowing another loan before your first is fully paid).
  • Unlicensed Lenders – Most legitimate financial institutions don’t offer these types of loans via prepaid debit cards. So, you may need to apply with an alternative payday lending company. Just keep in mind that this comes with some risk and you may be opening yourself up to potential scams.

Before applying for a payday loan, know your rights as a borrower.

Who’s Eligible For Payday Loans With A Prepaid Debit Card? 

To apply for a payday loan on a prepaid debit card, you may need to provide the following personal and financial documents:

  • One or more pieces of government ID (passport, driver’s license, etc.)
  • Proof of your address and contact information (utility bill, etc.)
  • Your Social Insurance Number (SIN) and date of birth
  • Proof of your income (recent bank statements and/or pay stubs)
  • A pre-authorized debit form or VOID cheque (if using a bank account)  

To qualify for a payday loan of any kind, you must: 

  • Be past the age of majority in your province/territory (18 – 19+)
  • Be a citizen of Canada or a permanent resident with proof of address
  • Have a steady income (usually a minimum of $1,000 – $2,000 per month)

FAQs About Prepaid Debit Card Payday Loans

What kind of fees can I expect to pay with a prepaid debit card payday loan?

Remember, a payday loan can come with very high service and administrative fees, even if it’s on a prepaid debit card from a reputable lender. These fees can include:
  • Loan origination fees
  • Document processing fees
  • Cheque handling & cashing fees
  • Money transfer fees
  • Debt collection fees
  • Late & NSF (non-sufficient funds) penalties 
Although most of these are one-time fees charged at the end of your loan term, they can quickly drive the cost of your payday loan beyond reasonable affordability. 

Can I add another payday loan to my prepaid debit card?

Yes, most payday lenders can load another loan onto your debit card at your request, as long as the balance of your first loan is already paid off in full (although this depends on your province or territory). In addition, you can deposit other types of funds directly onto your card, such as government benefits or a paycheque.

Should I take out a payday loan or a personal loan?

Generally speaking, payday loans should always be avoided unless you have no other option. A personal loan from a big bank or alternative lender is much easier to manage with affordable payments and a lower interest rate. 

Use Payday Loans With Caution

Getting a payday loan with a prepaid debit card can be an easy and convenient way of financing an important expense when you don’t have enough savings. However, don’t forget that payday loans come with many risks and costs that can make them harmful to your finances. Only apply for a payday loan if you have no other choice     

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