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If you’re in a financial pickle and need quick access to money in Red Deer to cover an emergency expense, you may have considered a payday loan to bail you out. But while these loan types may seem like they could be the solution to your problem, they may end up causing issues in the long run.
Here is everything you need to know about payday loans Red Deer.
What is a Payday Loan?
A payday loan in Red Deer is a specific type of loan that involves small loan amounts, usually for no more than $1,000. They must be repaid in one lump sum within a very short period of time.
Generally speaking, the full loan amount – plus interest – must be paid back by the time the borrower in Red Deer receives their next paycheque, hence their name.
If you’re considering a payday loan, make sure you know your rights.
Payday Loan Interest Rates and Fees
Payday loan interest rates are notorious for being incredibly high. In fact, they’re probably the highest rates in the lending industry. You’ll typically see interest rates in the three-digit range.
More specifically, they can reach rates as high as 391% in Red Deer, though some lenders may try to charge much more to customers.
Payday lenders in Red Deer may also charge certain fees in addition to interest, including fees for dishonoured checks or pre-authorized debit. Be sure to get familiar with the fine print of your contract in order to make an informed decision about the overall cost of the loan.
Check out these recent changes to the payday loan industry in Alberta.
Video: Payday Loans vs. Installment Loans
What is the Payday Loan Cycle?
When you take out a payday loan, you’ll have a very short amount of time to repay the full loan amount. Generally speaking, payday loans terms last for two weeks. They’re usually due back in full – plus interest – by the time you get your next paycheck.
The thing is, it can be really difficult to come up with the full amount plus interest within such a short timeframe. Many borrowers in Red Deer who don’t have the money to repay the loan end up taking out another payday loan in order to repay the initial loan amount.
But these “rollover” loans continue to build debt month after month, creating what’s known as a “payday loan cycle.”
With every continued rollover payday loan that’s taken out, the debt continues to mount, making it more and more difficult to break the cycle. In order to break the payday loan cycle of debt, there a few options in Red Deer that you might want to consider rather than taking out another payday loan.
Do you know how much payday loan really cost in your province? Check this out.
How to Break The Payday Loan Cycle
Personal loans – Instead of taking out a payday loan that must be repaid in one lump sum in such a short amount of time, a personal loan will give you a little more time to repay the full loan amount. In addition, you’ll have the option to repay in installments rather than in one lump sum, making it much easier to gradually accumulate the funds required to repay the loan in full.
In addition, the interest rates associated with personal loans are usually much lower than the interest rates associated with payday loans.
Debt relief service – If you’re having a hard time paying down your debt associated with your payday loans or any other type of loan, you may decide to seek help with a debt relief service. These types of services will help educate you on what you need to do to budget your finances.
This will help to make more funds available to pay down your debt and eventually help you become financially free sooner rather than later.
Some programs work by helping you consolidate your debt, in which case you would take out a large loan and repay all of your debts with the money from the loan. Ideally, the loan that you take out will come with a much lower interest rate than the highest-rate debt that you currently have.
This will not only make it more affordable to repay your debt, but it will also make it easier for you to manage just one debt rather than several.
You may also work with a credit counselling service that will help you negotiate with your current creditors to lower the amount that you currently owe or even reduce the interest rate associated with your outstanding loan amount – or both.
Check out this infographic for even more information about the payday loan cycle.
Payday Loan Alternatives in Red Deer
While payday loans will give you a quick fix for a financial predicament that you might currently be in, there are much better alternatives that you may want to consider:
Installment loans – As already mentioned, installment loans allow you to repay the full loan amount in installments rather than in one lump sum. This makes it much easier to repay the full loan amount.
Interest rates are also usually lower and the timeframe within which to repay the full loan amount is typically much longer. In addition, you may also be able to qualify for a larger loan amount compared to what you would get with a payday loan.
Vehicle title loan – If you outright own your vehicle and no longer have a car loan to repay, you may qualify for a vehicle title loan. With this type of loan, you would surrender the ownership of your vehicle and let the lender place a lien on the title in exchange for a certain loan amount. When you repay the full loan amount, the lien will be removed from the title.
Home equity loan/HELOC – If you own a home and have a certain amount of equity built up in it, you may qualify for a home equity loan or a home equity line of credit (HELOC). Lenders will usually require that you have a specific amount of equity in the home, usually no less than 20%. Equity simply refers to whatever your home is currently valued at according to the current market, minus whatever mortgage amount you still owe.
Credit cards – While it’s usually not recommended to max out your credit cards because of the sky-high interest rates that are typically associated with them, they may be a better alternative to payday loans in an emergency situation. And while their interest rates are quite high, they are usually much lower than what you would get with a payday loan.
Just keep in mind that spending more than 30% of your credit card limit can have a negative effect on your credit score.
Red Flags of Predatory Payday Lenders
There are a number of honest payday lenders in Red Deer, but there are also a number of predatory lenders who are only in the business to take advantage of unsuspecting consumers. Make sure to understand what the warning signs of predatory lenders are in the payday lending sphere, including the following:
- Guaranteed approval
- Requiring an upfront insurance fee
- Promoting rollover loans to repay previous loans
Is a Payday Loan Right For You?
In most cases, payday loans are not the ideal choice. There are several other options in Red Deer that you may want to consider before resorting to a payday loan. Having said that, there may be a dire situation that requires immediate attention, and the money that you obtain from a payday loan may come in very handy.
The funds are usually provided quickly, making a payday loan an extremely convenient way to access emergency funds. Just keep in mind that the money will have to be repaid in one lump sum and in a very short period of time with a very high-interest rate.
When is a Payday Loan a Bad Idea?
In the majority of cases, payday loans in Red Deer should be a last resort, if not discounted altogether. Here are some specific situations where a payday loan may not be a good idea:
- You’re using your credit card to pay your bills
- Your monthly income is totally maxed out
- You don’t have a stable income
- You’re only looking for extra funds to pay for a non-emergency expense
Make sure you ask yourself these 10 questions before you apply for a payday loan.
What Credit Score Do You Need to Get a Payday in Loan Red Deer?
Conventional lenders typically require a credit score of no less than 650 to 680 in order to approve a loan application. Payday lenders, however, are not as stringent when it comes to credit scores.
In fact, payday loans are among the easiest types of loans to get approved for. Instead of placing so much weight on your credit score, payday lenders will usually only take your income and bank account into consideration.
Interested in more information about credit scores? Take a look at this infographic.
In Need of a Loan in Red Deer?
No matter what you may need money for, Loans Canada can help you get access to it quickly and efficiently. Get in touch with Loans Canada today and we’ll help you get the ball rolling on your much-needed loan!
