While payday loans may seem like an extremely convenient and maybe even affordable way to borrow a small amount of money as quickly as possible, they are in fact one of the worst lending products you can get.
Every day, Canadians all across the country deal with financial issues and emergencies, their cars break down, they have to take expensive last-minute trips to deal with family emergencies, and they lose their jobs. All of these things are financially straining and often lead to payday loans. The issue is, payday loans aren’t the solution that these Canadian need, they are the problem.
The True Cost of Payday Loans
Applying for and getting approved for a payday loan is a deceptively simple process. All you need to do is request a loan from a payday lender, either in person or online, have a bank account, be at least 18 years old, and be employed or have some form of guaranteed income. Have all that and you’re basically guaranteed a loan.
While this might all sound not so bad to you, the problem with payday loans is that they create a cycle of debt, one that is almost impossible to get out.
Do you know your rights as a consumer when it comes to payday loans? Find out here.
Payday Loans vs. Personal Loans
The idea of a payday loan can be very appealing especially if your current financial situation isn’t so great. But what payday loan providers don’t advertise is that once you take out one loan you’ll be sucked into a cycle that will completely ruin your finances. Payday loans do not exist to help out people who need financial help they exist to make money for the providers. Here’s what you need to know about payday loans.
The Interest Rate
Payday loan interest rates are some of the highest for any type of loan; some carry a 500% yearly interest rate which will inevitably force you to pay more for interest than the original loan amount. Here’s the scenario, you take out a $500 payday loan which needs to be paid back in two weeks. Once the two weeks are up you’ll owe your provider at least $600 if not more. This is about a 20% interest rate for two weeks (but amortized over a year, the amount is much greater) but the problem is that in Canada this is the low end of the spectrum and if you can’t afford that extra $100 you’ll be forced to take out another payday loan.
The Payday Loan Cycle
The payday loan cycle is one of the worst financial situations to be in. You are pulled into the cycle when you can’t afford to pay back your first payday loan. This happens because payday loans need to be paid back by your next paycheque. Let’s say you take out a $500 payday loan today because you have no money and only get paid next Friday. But on the following Friday, the payday loan company takes back their $500 plus interest and now you have no money again and you need to pay rent and buy groceries. This is where the cycle starts because now you need to take out another payday loan to pay rent and buy groceries.
To learn even more about the payday loan cycle of debt, click here.
Small personal loans are just as simple and quick as payday loans but they come with significantly fewer problems. If you’re currently thinking about taking out a payday loan to cover some of your financial burdens then we urge you to reconsider as a payday loan will not solve your financial issues, it will only create more for you. Instead, choose a small personal loan from a private lender who will work with you to get the money you need and the payment plan you deserve.
Interest rates associated with small personal loans are significantly less than those of a payday loan. Small personal loans are meant to help people with their finances and won’t suck them into a horrible cycle of debt. What’s even better is that because you’ll be able to afford your payments and won’t be forced to pay more in interest than the original loan amount.
Personal loans come with installment payment plans where you’re able to pay off the loan with small affordable payments over an extended period of time, unlike payday loans where the full balance needs to be paid back in one payment. A $500 installment loan will most definitely help you deal you’re your financial issues, whereas a $500 payday loan will only create more issues. A simple, inexpensive and easy to understand payment plan is the key to getting out of debt and making better financial decisions. An installment loan means you won’t be bogged down with the stress of making one huge payment but instead, you’ll have a longer payment period and make smaller payments.
Can You Get a Payday Loan With Bad Credit?
Most payday loan companies do not run a credit check when they review a loan application. This means that having bad credit will not affect your chances of being approved for a payday loan in most cases. With a payday loan, you are limited to how much money you can borrow, however. Most payday loan companies will offer you approximately $100 to $1,500, depending upon many different requirements that you must follow. In many cases, you will have the money in your hand within an hour if you qualify.
Is a Payday Loan Ever The Best Option?
While our number one recommendation is for Canadian consumers to avoid payday loans if possible, we understand that they are certain situations where taking on a payday loan is the only option. For example, in an emergency situation where additional money is needed as soon as possible, a payday loan could be the best choice simply because of its quick approval times. Furthermore, if you could guarantee that you would be able to repay the loan by your next paycheque, then choosing a payday loan to cover an important expense may be the best choice. But, of course, this is where the issue with payday loans arises. Now one can predict the future and it can be very hard to know for sure that you’ll have the money needed to repay the loan on time.
Before you take out a payday loan, make sure to ask these 10 questions.
Canada’s Number One Alternative to Payday Loans
Loans Canada is the country’s number one alternative to payday loans. We’ve partnered with lenders and service providers all across the county to provide our clients with the loan, credit, and debt relief products they need so they don’t fall victim to the payday loan cycle of debt.
If you’ve been thinking about taking out a payday loan or if ever in the future you need access to money quickly, please consider any of the following options before you decide to take out a payday loan.
- A small installment loan
- A line of credit
- Tap into your home equity
- Borrow from a friend or family member
Looking for An Alternative to Payday Loans?
If you’re interested in more information about the loan options available to Canadians looking to stay away from the payday loan cycle, Loans Canada can help.