3 Common Misconceptions About Payday Loans in Canada
Payday loans are short-term loans designed to help borrowers get through a temporary shortage of funds. Lenders typically approve your online or in-store loan application on the same day. On your next payday, the lender withdraws the amount you’ve borrowed plus a fee directly from your account.
A payday loan can help you pay for car repairs, utility bills or unplanned travel. Payday loans can be extremely beneficial when used correctly, but myths about them persist. Here are a few common payday misconceptions worth investigating.
Misconception #1: Payday loans carry exorbitant interest rates
The facts: You may have heard that online payday loans in Canada can carry an annual interest rate as high as 400% or more. However, remember that payday loans are short-term loans designed to be repaid on your next payday. While you will pay a fee on the amount you borrow, you’re not likely to pay double or triple what you’ve borrowed if you repay the loan on time.
In Canada, payday lenders can only legally charge you up to $17 per $100 you’ve borrowed. The fee charged on payday loans is not intended to be annualized, which is why it seems unusually high in APR form.
Misconception #2: Payday loans require good credit
The facts: A good credit score is not a prerequisite for payday loan approval. This makes payday loans a good option for applicants with poor credit who need a short-term loan.
It’s also important to note that applying for a payday loan does not impact your credit when paid on time. Payday lenders may perform a soft credit inquiry to understand an applicant’s financial situation. However, they won’t usually perform a hard check – the credit check that can slightly lower your score.
Misconception #3: Payday loans have hidden fees
The facts: There are indeed fees associated with payday loans, especially if you have insufficient funds in your account when it’s time to repay the loan. But lenders are transparent about the fees they charge. Legally, payday lenders in Canada are required to disclose important details about the loan in the loan agreement. This includes the amount borrowed, fees, payment schedule, and the loan due date.
Reliable and licensed lenders will clearly outline the fees you must pay in your agreement. They won’t hesitate to clarify any doubts you have regarding the fees mentioned.
Payday loan tips for borrowers
Payday loans can be an excellent tool to help you navigate a financial emergency. However, as with any other form of credit, it’s important to use them responsibly. Follow these tips to ensure you make the best of your payday loan.
- Ensure you’re borrowing from a reputable and trustworthy lender.
- Read your loan agreement carefully.
- Make sure your account has enough funds on repayment day to avoid an overdraft.
- Only borrow what can be withdrawn by your next payday.
- Consider other options if your income is uncertain or inconsistent.
