Have you ever gone through a financial crisis where you ran out of money to cover an unplanned expense? You might require quick access to cash in an emergency! Payday loans are one of the options accessible in Canada. Although the quick and simple procedure may seem like a quick and easy solution, if you’re not careful, it could make your situation worse. What is a payday loan?

What is a Payday Loan?

A payday loan is a short-term, high-interest small personal loan that is intended to be paid back on the next pay day, usually within two to four weeks. Each province’s payday lender and individual loans have different terms and structures. Due to the lack of collateral requirements from the borrower, payday loans are classified as unsecured loans.

So, how do payday loans work?

Contrary to its name, it is not a loan in which you receive the money on payday. Generally speaking, you are permitted to borrow up to 50% of your anticipated take-home pay, and although the terms and conditions may change, you must repay the loan with interest within a two-week payday loop. The repayment is frequently anticipated as a single, complete payment.

If you need money right away, payday loans might seem like a lifesaver, but the high fees and brief repayment periods can trap you in a debt cycle.

Understanding how interest rates operate is crucial to addressing payday loans. Payday loans have exorbitantly higher interest rates than traditional bank loans. This is the main distinction between the two.

Take into account the fact that bank or credit union loans or lines of credit typically have annual interest rates of between 8% and 10%. Annual interest on credit cards is typically between 12 and 24 percent. If a payday lender charges $51 on average for a $300, 2-week loan, the annual interest rate is 442%. That is huge!

What Happens if a Payment is missed?

What happens if you miss a payment on a payday loan? Missed payments can have serious negative effects and can cause debt to grow quickly. These are some possible scenarios for a missed payment, depending on your province’s laws, but the following are some possible results from a late payment:

• In the event that your bank account is insufficient, the lender may impose fees on you.
• If there isn’t enough money in your account, your financial institution may also impose a non-sufficient fund (NSF) fee.
• The total amount you owe will continue to rise as a result of the fees and added interest.
• The lender might make an effort to get in touch with your friends, family, or employer in order to get the money.
• The lender might turn the case over to a collection agency, which would harm your credit score.
• Your property might even be seized by the lender or collection agency if they decide to sue you for the debt.
• Your wages could be garnished by the lender in court.

Are payday loans suitable for you?

You can say that they are not entirely hassle-free given the high interest rates and serious repercussions involved. If you know you won’t be able to repay the loan on time, we advise you to think about the following alternatives:

Ask for a longer deadline to pay your bills.

Get in touch with the people or businesses to whom you owe money and request more time to pay your bills. Offer to postdate a check for the day you are scheduled to receive payment.

Try These Alternative Borrowing Techniques

Here are some less expensive options that won’t charge you exorbitant interest rates if you need the money right away.

• Request from your employer a paycheck advance.
• Borrow money from friends or family.
• Ask your financial institution for a line of credit.
• Get a credit card cash advance.
• Go to your bank or credit union and ask for a personal loan.

BREAK FREE FROM THE DEBT CYCLE

Debt is a vicious cycle that can feel completely hopeless but it doesn’t have to be. Consult reputable experts who can provide you with nonjudgmental advice to help you determine the best course of action for your financial needs. EmpireOne Credit financial debt experts can provide a wealth of knowledge to get you out of debt.

At EmpireOne Credit, we advise our clients to take all reasonable steps to prepare for financial hardship, including setting up an emergency fund, saving money  and getting out of debt.  To get your finances in order and achieve your financial objectives, our financial debt experts can assist you in identifying the best debt solution options like a debt consolidation, consumer proposal, and bankruptcy. Get started on your path to financial freedom by getting in touch with us right away!