Payday loans may look like a good idea when you can use fast cash, but they are not without risk and borrowing one can cost you in ways you may not expect. In this article we attempt to provide you with all you may need to know for making the right decision.
If you find yourself in need of money in a hurry and certain you will be able to pay back the amount borrowed plus interest and any fees, so long as you understand the terms, it’s your option to use this type of loan. Many consider payday loans as predatory, and they are an expensive form of borrowing. But if your options are limited and you are alright with the terms and confident in your ability to repay when they become due, it’s one way to get fast cash.
Pros of Payday Loans
When you need fast cash, payday loans can be the answer. With online lenders some can even fund you within an hour with e transfer payday loans when approved. But let’s look at the main advantages.
– fast decisions
– fast funding
– less requirements than other loans
– no credit checks, bad credit accepted
Like most online options a payday loan is deposited in your account if your request is approved. Most payday lenders don’t look at credit scores because they know that most of the people applying for this type of loan would not have a score that would pass.
Cons of Payday Loans
For some a payday loan might be the only option if they have bad credit and find it difficult to get approved for other types of loans, but it’s important to understand a few things before borrowing.
– high interest rates
– some may have additional fees
– short repayment terms can create a debt cycle
You should also know that if the funds are not in your account when a lender goes to withdraw the repayment that you agreed to in the agreement, they may attempt multiple withdrawals. This can result in several overdraft or non-sufficient funds (NSF) charges, which can be $35 or more each time they try. This can also damage your credit score. You should also note that most payday loans do not help build your credit score as these types of lenders usually don’t report positive payments to the credit bureaus.
If you find yourself living from paycheque to paycheque or falling behind on payments, it can be a sign of potential finance issues to be concerned about. If this sounds familiar, a payday loan might be a short term solution but it can also create bigger problems.
Payday Loan Alternatives
Before taking a payday loan, you should consider other options. As mentioned, this is an expensive way to borrow. If you have anything of value you can take to a pawn shop it can be a better alternative. If you can borrow from a friend or family that can be a better option.
If you qualify for an installment loan, which usually requires a credit score of at least 580, this is another option that’s better than a payday loan. The interest rate is usually lower and repayment is spread over a few months instead of in full on your next payday.
If you have a line of credit or even a credit card where you can get a cash advance it can be a better option to borrowing a payday loan.If you’re looking at a payday loan for bills, you may find that you can negotiate with your creditors to come up with a payment plan that works for you.
Using a payroll app to get access to your pay early can be an option and provide access to a percentage of your paycheque. Pay advance apps like Nyble, Bree and KOHO might help. Asking your employer for an advance can also be an alternative to applying for a payday loan.
Usually when considering this type of loan there is a need for fast cash. But if the need isn’t urgent you can look at other ways to make money that are often found online in Canada.
Factors That May Affect a Loan Request
It might be easier to get a payday loan than other types, but there are factors which can impact a loan request and your odds of approval. The amount you request is usually limited to 30% of your income or less. If you make $1,000 every couple of weeks, you may qualify for up to $300 to borrow. If you have outstanding debt or other unpaid loans, it can also affect your chances of approval. Many lenders require applicants are employed with a reliable income, but you can find lenders that will consider other income sources like ODSP benefits or similar.
If you come across lenders making promises of guaranteed approval or no refusal payday loans then you want to ensure whether they would be reputable. Lenders make claims like this to attract customers, so you want to watch if they are licensed or a member of an organization such as the CLA (Canadian Lenders Association) or the CCFA (Canadian Consumer Finance Association).