Top Five Facts about Payday Loans

Those who are looking into payday loans probably wonder what the pros and cons of such loans are. Here are five facts to consider along with your personal financial situation.

First, payday loans are not intended for major purchases as they are short-term, small loans to meet your expenses until your paycheck arrives. The loan is limited to $500 to $1,500, depending on whether you are a first-time borrower or a returning client of the particular company.

Second, this type of loans is usually extended to borrowers who have exhausted all other options but at the same time, they need the money urgently. These loans are frequently called bad credit loans. If you apply with a bank, credit union, or another traditional financial institution, the application process may be longer than you are willing to wait. With payday loans, money is usually available in one working day, and some companies advertise immediate access to funds.

Third, the requirements for applying for a payday loan are not as strict as those for standard loans, making it possible for persons with poor credit score to apply for and obtain funds. Those who apply should have a stable source of income and a job. They should also have a checking account where the money will be deposited. Some payday lenders also require that applicants have an active email, with their checking account being three or more months old. Applicants should be of legal age and Canadian residents. In addition, there may be a requirement in place stating that you should not plan to file for bankruptcy relief and should not be a debtor in bankruptcy. If you fulfill these requirements, you will be extended funds to meet your financial requirements, which may include repair costs to cover a car breakdown, medical bills, pending grocery bills, or other unforeseen expenses. Keep in mind that not all payday lenders will approve applicants who are paid disability. Even if you are approved, the fees on the borrowed funds are likely to be higher.

Forth, some borrowers consider the interest rates charged by payday lenders to be excessive. Payday lenders respond to this claim by saying that the interest rates they charge should match the processing costs. The latter are the same as those of home mortgages and other loans. Lenders claim that given the shorter terms, offering conventional interest rates will not turn to be profitable. For example, one week loan of $50 at an interest rate of 20 percent APR will generate just 19 cents of interest, failing to match the processing costs associated with issuing loans.

Finally, in Canada, there are usury laws in place, making sure that you, as a borrower, will not be charged excessive interest rates. In compliance with the Criminal Code of Canada, payday lenders cannot charge over 60 percent per annum, and this is considered a criminal offence. Thus, borrowers can rest assured that there are regulations in place to hold lenders responsible for certain practices.