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Many people in Ottawa find themselves needing fast access to cash that they might not necessarily have. Living paycheck to paycheck is rather common, and when a surprise cost pops up, many consumers in Ottawa aren’t financially equipped to come up with the funds needed to pay for such expenses.
Luckily, there are short-term loan options available to consumers in Ottawa who need to get their hands on extra cash quickly. And one type of loan that many consumers in Ottawa turn to is the payday loan.
But what exactly are payday loans and are they the type of financial product that you should consider?
When it comes to payday loans, it’s important to know your rights.
What Are Payday Loans?
Payday loans are short-term loans that are usually made for no more than $1,000. They’re meant to cover an emergency expense right away, after which they are required to be repaid in full in a very short period of time.
Generally speaking, payday loans must be repaid by the time the borrower receives their next paycheck, hence the name.
Rather than repaying the loan amount – plus interest – in installment payments like most other loan types, payday loans must be paid back in one lump sum, making them a unique type of short-term loan.
Ontario debtors can’t seem to break the payday loan cycle, read more here.
Be Wary of the Payday Loan Cycle
While payday loans are extremely convenient and are typically easier to get approved for than conventional loan types, there are certain dangers associated with them. More specifically, the “payday loan cycle” can be easy to get into but extremely difficult to get out of.
Since the loan amount must be repaid in full within such a short period of time, it can be difficult for many borrowers in Ottawa to come up with the money needed to pay the loan back.
Even after receiving their next paycheck, there are other bills that need to be paid, so having the funds needed to repay the loan can prove to be a challenge. And when the sky-high interest rates are added on, the situation becomes even more difficult to deal with.
In order to come up with the money needed to repay the loan, many borrowers in Ottawa take out another payday loan to pay off the first loan. And if the second payday loan can’t be repaid, another loan may be taken out to repay the prior loan, and the cycle continues.
To break this cycle and to prevent the debt from piling up, there are a couple of solutions that consumers in Ottawa may want to consider. For starters, it may be better to take out a personal loan instead of a payday loan.
These types of loans are much easier to repay because the repayment period is much longer and the loan amount can be paid back in installments. Further, the interest rates may be lower than payday loans, making them more affordable.
If you need more help with repaying your debt and getting yourself out of the payday loan cycle, consider seeking help from a debt relief or credit counselling service (click here for more information about dealing with payday loan debt).
These professionals can help guide you on how to better manage your finances in order to get you out of the cycle of debt, or may even help you negotiate with your creditors to reduce your debt load or interest rate.
Check out this infographic for even more information about the payday loan cycle.
Alternatives to Payday Loans in Ottawa
Considering the potential perils of payday loans in Ottawa, you may want to consider another loan option instead, such as any one of the following:
Installment loan: While payday loans require full repayment of the loan in one lump sum in a short period of time, installment loans can be repaid in installment payments instead. This makes it much easier to collect the funds needed to satisfy the loan.
And because more time is permitted to repay the loan amount, this can make it even less stressful to come up with the money needed to pay the loan off in full.
Home equity loan/Home equity line of credit (HELOC): Are you a homeowner in Ottawa? If so, you may be able to use the equity you’ve built up in your home to be used as a source of funds.
If you have at least 80% equity in your home, you may be eligible for either a home equity loan or a HELOC. Your home equity simply refers to the value of your home less what is still owed on the mortgage.
Vehicle title loan: Do you own a car? Have you paid off your car loan in full and now outright own it? If so, then a vehicle title loan might be an option for you.
In this situation, you would temporarily trade in the title of your car in exchange for a loan. Your leader would place a lien on your title until the loan amount is fully repaid, in which case you would get your title back.
Credit card: Generally speaking, spending a lot on your credit card isn’t advisable. For starters, the interest rates associated with credit cards tend to be very high compared to other loan options.
Plus, spending close to your credit limit can have a negative impact on your credit score. That said, using your credit card for a temporary financial fix might be a better option than taking out a payday loan at a much higher interest rate and getting stuck in a vicious payday loan cycle.
Steer Clear of Predatory Payday Lenders in Ottawa
Not only are payday loans in Ottawa potentially dangerous because of the loan cycle that can easily ensue, but they can also be bad because of some of the predatory lenders that hand them out. In fact, it’s these types of shady lenders that increase the odds of borrowers getting themselves stuck in a payday loan cycle.
It’s best to steer clear of these types of lenders in Ottawa, and in order to do that, it’s necessary to be familiar with what to watch out for:
- Extremely high-interest rates (in the triple digit range)
- Extremely tight loan terms
- Mandatory insurance fees paid upfront
- No transparency about their fees
- Guarantee of approval
If you identify any of these red flags, look to another lender for your loan.
Interest Rates on Payday Loans
Payday loans in Ottawa are notorious for their extremely high-interest rates. In fact, payday loans typically come with the highest rates in the lending sphere, and can be as high as 546% or more!
Considering such high rates, these loans are extremely expensive and can be impossible to repay in full by the due date as a result.
10 questions everyone should ask before getting a payday loan, click here.
Payday Loans Vs. Personal Loans
What’s the difference between a payday loan and a personal loan? Don’t they both involve borrowing money with interest that needs to be paid back in full by a specific due date?
They do, but that’s essentially where their similarities end. There are specific differences between payday loans in Ottawa and personal loans, including the following:
Payment schedule. Payday loans must be repaid in a very short period of time, usually in two weeks by the time the borrower’s next paycheck rolls around. On the other hand, a personal loan typically allows for a much longer repayment schedule, as much as a few months to a year.
Payment frequency. As already mentioned, payday loans are usually repaid in full in one lump sum, which also includes the interest portion of the loan. Instead, personal loans are paid back in installments, making it easier to repay this type of loan compared to the former.
Interest rate. Payday loan rates are known to be some of the highest in the lending sphere, charging borrowers over 500% in interest. And although personal loans may come with high rates depending on the credentials of the borrower and the loan amount, the rates are usually far less than what a payday lender would charge.
Loan amount. Payday loans are usually made for no more than $1,000, and sometimes less. Personal loans, on the other hand, allow for larger loan amounts. That said, the exact loan amount permitted will depend on the lender and the financial health of the borrower.
Video: Payday Loans vs. Installment Loans
Payday Loan Rules in Ottawa
The rules surrounding payday loans in Ontario are governed by the Payday Loans Act of 2008. In Ottawa, you can’t be charged more than $15 for every $100 borrowed, and you have two business days to nullify your contract without being charged a penalty.
Lenders can’t ask for payment by automatically deducting the amount from your paycheck, and they can’t lend you any more than half of your net income per payday loan. Further, lenders must include specific information in the contract, such as the amount you’re borrowing, how long the loan is for, and the cost of borrowing the funds.
Online Payday Loan Options
In Ottawa, there are many brick-and-mortar payday loan stores available throughout the city for borrowers to visit and get access to fast cash.
However, there are also plenty of online payday lenders in Ottawa available for those who are looking for a more convenient way to borrow money. All that’s needed is an internet connection, after which an application can be filled out and the necessary documents can be submitted online.
Loan approval is usually made shortly after submission of the application, and the funds requested will then be deposited into your bank account.
Credit Scores Required to Secure a Payday Loan
When it comes to getting approved for a loan, one of the more important factors involved is your credit score. Conventional loans, such as mortgages and car loans, typically require a credit score of at least 650 to 680, depending on the lender.
That said, payday loans in Ottawa are easier to get approved for and don’t necessarily require such a high credit score. In fact, many payday loan lenders approve applicants with low credit scores. Instead, of focusing on credit scores, payday lenders, place more weight on an applicant’s income and assets.
Interested in the factors that affect your credit score? Take a look at this infographic.
What Can You Use a Payday Loan For?
There are so many applications of a payday loan, from paying for a last-minute home repair to fixing your car to covering the cost of a medical bill, and so forth. But considering the potential dangers of payday loans in Ottawa, it’s imperative that you seriously consider what you’re going to be putting the money towards.
The last thing you want is to worsen your financial situation in Ottawa, and that’s exactly what could happen if you’re not financially strong and aren’t careful with how you handle your payday loan debt.
Before you take out a payday loan, be sure to carefully consider what you need the money for, and perhaps consider other options first before settling on this particular loan type.
Looking to Get a Short-Term Loan in Ottawa?
Many consumers find themselves in a position that requires more money than their bank accounts have. If you’re in a situation where money is tight and a pressing expense needs to be covered right away, you may want to take out a loan to help you out.
But before you settle on a payday loan, be sure to weigh all your options first. Loans Canada is available to help you decipher what loan option is best for you based on what you need the funds for and help you find the right lender in Ottawa. Call Loans Canada today!
