Instant payday loans are quite popular in Canada and may seem like a good option to take before the next paycheck or for unexpected bill coverage. They are simple in procedure and you can practically borrow anytime. However, there are many hidden fees and cost that can make these loans unaffordable. There are a lot of online payday loan lenders in Canada. For borrowers in need of an urgent loan, it's difficult to figure out which of them are legitimate lenders and which pursue predatory interests.
Here, you will learn about instant payday loans and how to choose the lender wisely.
What is an instant payday loan?
Payday loans in Canada are short-term loans, usually issued at a high interest rate. The borrower pays the principal amount of such a loan from their next salary. Although lenders demand very high interest rates for an instant payday loan, borrowers can find advantages in instant solutions, fast approval, and instant financing of payday loans.
Instant payday loans vs. cash advances
Instant payday loans are often confused with cash advances. A cash advance is a loan that you take out for a short period using your existing credit card.
The maximum instant cash advance limit may even be less than $500 per day. When submitting a payday loan application, you can usually request from $100 to $1,500. A lot here depends on the province you live in, as well as the lender you choose.
When you take a cash advance, prepayment is mandatory. For example, it may be 5% of the amount of your loan. After that, you have to pay interest on your advance in cash. Usually about 24% per annum, but other options are possible. An instant payday loan also requires an upfront payment, which depends on the amount you borrow. It usually ranges from $15 to $25 for $100. Since the repayment period of these loans is about two weeks, it is not difficult to calculate that it is about 400% per annum and above, making them high-cost loans.
Where to get an instant payday loan?
Payday loan lenders usually do not have strict eligibility criteria, as is the case with traditional banks and credit unions. Banks and credit unions typically offer personal loans, and require hard credit checks. For payday loans in Canada, poor credit, low income, or receiving government benefits is not an obstacle. Instant loans usually come in the online form. Online payday loan requires submitting an online loan application. It allows you to upload all the documents using your mobile or computer. The major advantage of an instant payday loan is the convenience of electronic transfer. If you have chosen a lender promising immediate approval, you will most likely get access to the money fast.
How to identify legitimate payday lenders?
There are several characteristics to identify a legitimate payday direct lender.
One of the best characteristics of a lender may be its Better Business Bureau accreditation (BBB). BBB helps identify trustworthy businesses across Canada, America, and Mexico. The borrower can be confident in a lender with BBB accreditation.
Preliminary contact details of the online lender. If the lender doesn't provide a physical address or phone support, avoid its offers.
You should be able to use the money for legitimate reasons. The lender should not dictate to you what exactly you can use your credit funds for.
Fees and charges must be known in advance. The loan agreement must contain all required fees and charges. Study it carefully to understand exactly how much you will have to pay. An honest lender does not announce any unexpected expenses.
There better be no prepayments. If the lender requests money in advance, you should be very wary of this. Some lenders require an origination fee, but it is paid after you receive your funds and is the percentage of your loan amount.
You are protected by laws, including the Consumer Protection Act. For example, under this act, the maximum charges permitted for British Columbia residents is 15% of the principal.
Other regulations include the maximum annual interest rates (APR), fees, and the limits and terms of borrowing. You can go through the entire application process online or contact your lender in person during their regular business hours. The regulations are the same for all the financial institutions offering payday loans in Canada.
How to apply for an instant payday loan?
The basic requirements for getting a loan in Canada are:
Being at least 18 years old;
Being a Canadian citizen;
A stable source of income;
A phone number and a bank account.
Instant loans are popular among borrowers with bad credit because private lenders are usually not interested in their credit scores. The lender will provide the loan amount you need after the information you have submitted has been verified with no credit checks. Then, within an hour, the loan will be credited to the account data provided by you.
Usually, instant online payday loans are taken by those who have financial emergencies and do not see any other ways to receive quick cash.
If you have applied for this loan, your application can be personal, by phone, or you can apply online.
Application details
Applying for this type of loan involves a few simple steps.
First, decide on the lender and open their website. Click Apply Now, select your province, and find the "Payday Loan" button. Read the regulations and rules of your province specified by your lender. For example, the application page will indicate the maximum loan amount and when the funds should be returned.
Enter your personal information: your full name, address, date of birth, as well as phone number, and email address. Sometimes, you may need to create an account to log in.
Fill in all the information about the job: the name and address of the company, your position, and your monthly income (you need to specify the net and gross amounts). Payday lenders usually require a permanent source of income from their borrowers.
When applying for this type of loan, you must be sure that you have a checking account, route, and institution numbers. A pre-authorized debit form is also possible. Sometimes payday lenders also require payday checks or a bank statement. This information is needed to set up your direct deposit and withdraw funds from your account upon repayment.
Ways to repay instant payday loans
A payday loan is issued with immediate interest. Some lenders may require repayment of the loan as early as the day of your next paycheck, while others may be more flexible in calculating repayment terms.
According to your agreement, the amount of money borrowed will be withdrawn directly from your bank account. Most borrowers simply wait until the debt is repaid by withdrawing funds from the account. If there are not enough funds in the account, you will be charged an NSF fee from both the lender and your bank. In addition, you cannot get another payday loan until the amount is fully repaid.
Early repayment of your loan
The best solution when applying for this type of loan is to use it for a short period. Thus, it will be possible to keep interest payments at an acceptable level. Sometimes, interest is paid daily. This means that if the borrower receives a salary earlier, the loan can be repaid immediately, and a further increase in the amount will be stopped. However, not all lenders can provide early repayment of your loan. If, based on your contract, you can pay the loan ahead of time, contact your lender to receive payment instructions. After paying the loan, check if everything is done correctly.
Legal regulations of instant payday loans
Canadian law permits payday loans under section 347.1 of the Criminal Code. However, the province in which the borrower lives is of great importance here. Provinces have been regulating the payday loan industry since 2006. Based on this, each province, except for Newfoundland and Labrador, has passed legislation on restrictions on issuing payday loans, for example, on the maximum charges they can require. Before applying for such a loan, make sure that you are aware of the laws on this issue or their absence in your particular province.
The maximum allowable cost under payday loan agreements cannot exceed 23%. Some provinces put limits up to 21% ($21 for every $100 of your loan).
You can terminate the contract within two business days, paying no fees for this period.
A payday lender has no right to sell you anything except the loan you need before payday.
You may not have the legal right to get approval for another payday loan from the same lender until the first one is repaid.
Legal requirements for a payday loan lender
Depending on the province, the payday loans act usually requires lenders to meet the following standards:
Having a license for business practices from the government of the province in which they work is mandatory.
A trusted lender must provide specific information about your loan. This includes your exact loan amount, the term of your loan, as well as the real cost of your loan.
Problems with your loan concern only you, so the lender has no right to discuss them with anyone other than you.
The true cost of instant payday loans
Payday loans are a high-cost credit form. Consider all alternatives before deciding to apply for this loan. Although the legislation establishes rules that determine how much a lender can charge a borrower on payday, such loans are often predatory.
The maximum allowable charge of payday loans
The fact is that these loans have extremely high interest rates. They are much higher than the rates that are associated with credit cards. On average, the maximum allowable cost of borrowing is usually between $15 and $21 for every $100 of your loan. In addition, you pay commission fees, which usually range from 15 to 35 percent of your loan. This is quite a large amount to pay for a loan for a period of just two weeks. If you calculate the annual percentage rate of one of these loans, it could be over 500%.
You should not take out a loan without a clear repayment plan. If you cannot make loan payments on time and in full, this will negatively affect not only your future finances but also your credit history. Don't forget to consider the total cost of borrowing.
Hidden fees of loans
Delay or skipping repayment entails additional fees - the lender will charge a commission if you miss a payment without warning. If your payment is rejected (failed direct deposit, returned receipt), you will also be charged a commission.
