Do you know what payday loans are? This is a costly and crucial form of borrowing that is best avoided. Here’s why:
Do you evaluate borrowing opportunities and ask yourself what payday loans are? According to the Financial Consumer Agency of Canada (FCAC), a payday loan is a short-term loan, usually for 14 days, which you agree to pay when you receive your next pay.
These loans allow you to borrow between 30 and 50% of your take-home pay and they are contracted from private companies that usually require proof that you have a regular income, a bank account, and a permanent address. The lender will have you sign a contract specifying the costs, the various fees, the interest rate, and the due date. Reimbursement is by post-dated check or pre-authorized debit (direct withdrawal from your bank account/no direct deposit payday loans).
Make sure you can repay
Be sure to borrow an amount that you can repay: if you can not repay on the due date, you will have additional fees to pay, and interest will continue to accrue on your loan. To recover the money you owe it, the lender can turn to a collection agency, and you could even find yourself in court. If you often have trouble making ends meet, the form of borrowing payday loans should not be an option: it’s better to hire a credit counselor to help you find the best possible solution. Solve your money problems.
Read about: What is a short-term loan until the next payday
Use payday loan as a last resort
Payday loans are a costly way to borrow. Indeed, interest rates are very high: according to FCAC, in January 2012, an investment of $ 100 for two weeks cost $ 25 in Nova Scotia, which would correspond to an annual interest rate of $ 650. %! So you have every interest in trying to find other solutions, such as borrow money from a relative, ask for an advance on your salary or postpone some purchases.
Also check with your financial institution if you qualify for another form of loan: line of credit, overdraft protection or cash advance. These forms of borrowing have much lower fees and interest rates than payday loans.
Learn about your rights
You now know what payday loans are. However, before signing up for one, check with your local consumer information office for your reasons and the rules that lenders must follow. Some provinces (Alberta, British Columbia, Manitoba, New Brunswick, Nova Scotia, Ontario, Quebec, Saskatchewan) regulate payday loans. In particular, they established the maximum cost of payday loans, and the maximum penalty for returned checks or pre-authorized debit declined (amounts vary from province to province). They also provide a cooling off period (one or two days) during which the loan can be canceled without charge.