A payday loan is a small, short-term unsecured cash loan, typically borrowed against a post-dated personal check or paystub. The borrower gets fast and easy access to up to $1500 in cash, which they agree to pay back plus the finance charge on their next payday. The lender will provide the cash to the borrower where and when they need it.
Payday loans have high interest rates compared to other types of loans because they are so easy to get. All loans generally follow the same principle of the harder it is to qualify for the loan, the lower the interest rate is and vice versa. People are able to get payday loans simply by showing their paystub records and a piece of ID.
In Canada, there are many payday lending storefronts, and they tend to have a bad reputation for being predatory. This is unfortunately just the cost of doing business in the industry. Providing credit and cash to people who have been turned away by banks and credit unions is a very expensive operation. The majority of the people who opt for payday loans have lower incomes or bad credit history and a low credit score. Most of the payday loans are given for a short period of about 14 days or less.
The payday loan process
If you wish to take a payday loan, you can visit a payday lending store. You can show the lender your pay stubs and bank statements for verification purposes. Then the lender will give you the cash you need. You are then expected to return to the store on the due date to pay back the loan in person.
These days, you can get payday loans online. You just have to submit the loan application online, and the money will be transferred to your bank account via direct deposit. The loan amount plus the finance charges will then be credited to the lender's bank account on your next payday.
If you opt to get payday loans online though, be sure to only take them from reputable and regulated lenders like Cashco Financial. Many online lenders are not regulated and play by their own rules. These lenders can really damage your finances and hurt your credit score.
How payday loans can affect your credit score
A payday loan usually does not show up on the credit records of Trans Union, Experian, and Equifax, which are three of the major credit reporting agencies. However, it is possible that your payday loan history may be collected by special credit reporting agencies. The lenders may consider this when you apply for loans in the future. This is how payday loans affect credit scores.
If you do not repay a payday loan, it is possible that your file will go into the collections process and a debt collector may report your debt to the major national credit bureaus. This is really the only time that payday loans will impact your credit score. If you get a payday loan and repay it on time, you will never have a problem.
What if you cannot repay a payday loan?
You can contact the lender and negotiate partial payments or arrange a temporary payment plan with them. If you need to do this, do it as early as possible since there is more opportunity to help you if more time is available. If you fail to alert your lender, the interest will keep mounting. The lender also has the option to sue you in civil court.
What are some payday loan alternatives?
There are a number of alternatives that you can resort to rather than getting a payday loan. Here are just a few of them:
- Personal installment loan - You can approach a bank or a credit union for an unsecured personal installment loan. If you cannot get approved by a bank, then Cashco Financial offers Flex Loans that are easier to qualify for and can get you the money you need right away. Plus Cashco Flex Loans help rebuild your credit over time.
- Pay advance - You can ask your company for a paycheck advance option. The benefit is that it is an advance and not a loan. This means no interest. However, it can result in getting caught repeatedly asking for pay advances if you are not careful with budgeting.
- Credit union or a bank cash advance - Many credit unions and banks offer cash advance provisions or overdraft protection. It is more expensive than an installment loan but can still be an option.
- Life insurance loan - If you have cash value in the insurance policy, a number of whole life insurance policies give you the option for loans. You can take as much time as you want to pay it back. If the loan is not paid back, the insurance company will usually just deduct the amount from the death benefit.
