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Guelph, like many cities in Ontario, is a pricey area to call home. As a result, your daily expenses can run high, eating up your budget and causing problems with debt, which may damage your finances and credit. When that type of harm occurs, it can become quite hard to get approved for favourable credit products, such as loans.
If you’re in that kind of situation right now, it’s possible that you’re considering taking out a payday loan to resolve the issue. While a payday loan might help you out of some situations, it may not be the safest product to apply for. Let’s find out why.
What is a Payday Loan?
Payday loans are credit products that you can access in Ontario, either online or at in-store locations. Typically, they come in small amounts of $100 – $1,500 (some lenders offer more) and are deposited as lump sums of liquid money directly into your bank account 24 – 48 hours following the approval of your application.
Once 14 days have passed, the lender will request the full loan balance to be repaid, including interest and fees. As long as you’ve covered all the associated costs, you’re free to apply for another loan or move on.
Payday loans are also appealing because they are very easy to acquire compared to other credit products, such as regular installment loans. You won’t need to provide collateral, have a cosigner, or go through a credit check.
More often than not, all you need to be approved is proof that you are:
- At least 19 years old (government I.D.)
- A permanent Ontario resident (utility bills, etc.)
- Using an active bank account (monthly statements, etc.)
- Steadily employed and earning a minimum monthly income of $1,000 – $2,000 (paychecks, etc.)
These positive elements make payday loans a simple, convenient solution when you have a low income, bad credit, and/or problems with unpaid debt, which would normally deter a traditional lender from approving you. Their quick approval times also make them good for small-scale financial emergencies.
Most payday lenders will even grant you a loan if you’ve recently experienced a consumer proposal or bankruptcy. All this said, however, the negative aspects of payday loans in Guelph may outweigh the positives.
What is a Payday Loan Debt Cycle?
Now that we’ve seen how payday loans can help your situation, let’s discuss the ways that they can actually be detrimental to your financial profile.
Perhaps the biggest drawback to payday loans relates to how much they cost. Firstly, payday loans have some of the highest interest rates of any credit product in Canada. In fact, licensed payday lenders are allowed to charge up to $15 per $100 you borrow (rates will vary from province to province).
That rate, coupled with some exorbitant administrative fees may drive the price of a single payday loan well above the amount that you originally applied for. In addition, a penalty fee will be added to your bill if you don’t have sufficient funds when the final loan payment comes due.
Under the wrong circumstances, these costs can be totally unaffordable, leading to massive debt problems, especially when you rely too much on payday loans. Luckily, the Ontario government has made ‘rollovers’ illegal, meaning lenders are not permitted to grant you a second loan before the balance of your first has been fully paid.
In Guelph, payday loan lenders are also not permitted to:
- Refuse to show you valid business credentials (license, etc.)
- Disguise any fees (all costs must be displayed in advertisements and contracts)
- Use disrespectful or aggressive language to get you to apply/pay
- Contact you outside of business hours to request payment
- Tell your friends, family, or coworkers about your debt when trying to contact you
- Request your signature on a form that transfers your wages directly to them
- Demand any type of payment before your loan is deposited to your account
- Give you a cooling-off period of less than 2 business days (to cancel your loan penalty-free)
Despite these regulations, payday loans can still lead to a lot of unmanageable debt on your plate, so it’s important to be aware of this danger prior to applying.
Comparing Lenders in Guelph
If you do need access to a payday loan for whatever reason, it’s also critical to compare lenders in your area and research their companies properly before you hand over any personal information. Unfortunately, this is because of the scam artists and predatory lenders that lurk within the world of payday loans.
A particular problem with online lending, which is harder for the government to regulate, these shady entities rely on the fact that you need a solution to your money problems and may use it to steal your money, maybe even your identity. While some predatory lenders pose as legitimate businesses, they will attempt to entrap you by charging illegal fees for substandard loans.
However, if you remember the warning signs listed above when researching payday loan lenders in Guelph, you should have an easier time avoiding the ones who are truly out to harm your financial health.
How Can I Reverse My Payday Loan Debt?
If you are about to apply for a payday loan in Guelph, the best thing you can do is save up enough of your income to repay your full balance on its due date. This way, you can deal with your expenses and avoid any problems in the near future.
Nonetheless, if you are suffering from payday loan debt, there are many different solutions and products that may provide you with some relief, such as:
- Borrowing from friends or family
- Credit counselling sessions
- Debt consolidation loan
- Debt consolidation program
- Proposing a debt settlement to your lender
- Filing a consumer proposal
- Declaring personal bankruptcy
Consumer Proposals and Bankruptcies
When your debt situation becomes totally unmanageable, two of the most effective solutions would be to file a consumer proposal or declare bankruptcy, which you can do with the help of a Licensed Insolvency Trustee. The problem is that, in certain respects, these two drastic legal procedures can be just as harmful to your finances and credit as a payday loan.
If you think you may need to file a consumer proposal or go bankrupt, be sure to look into all your other alternatives first and be well prepared to deal with the consequences that may follow if either type of procedure goes through.
What Are My Alternatives?
When all is said and done, the negative information above may have deterred you from applying for a payday loan in Guelph. Don’t worry, it may be for the best, especially if you don’t have the funds to cover all the costs that would be involved.
All in all, a payday loan is the absolute wrong choice when:
- You’re unemployed or earning an unsteady income (freelance, etc.)
- You’re dealing with other expenses that typically use up your income/savings
- You haven’t properly researched the payday lenders in your area
- You haven’t yet exhausted all your more conventional options
If you’ve decided against payday loans but are still looking for a solution to your regular expenses, you can also try the following alternatives:
- Basic installment loan
- Traditional or secured credit card
- Guarantor loan (cosigned)
- Vehicle title loan (use your car as collateral)
- Home equity loan or line of credit (HELOC)
What Can Loans Canada Do For You?
Although a payday loan in Guelph can come with a lot of risks, it may be necessary for your particular financial situation. Whether you need a payday loan alternative, to recover from the debt, or find a different option altogether, the Loans Canada network can help.