Ever heard about payday loans?
People bring them up whenever they need quick cash to pay off emergencies or when their salary isn’t due yet. Are these a good solution for your short-term needs? How do payday loans work anyway?
Don’t worry, we’re going to clear it up for you. Read our guide below to learn everything you need about the way payday loans work and whether or not you should get one:
The Problem With Bank Loans
Have you ever tried applying for a loan at the bank? Whether it’s a personal loan to pay the hospital or an auto loan to get a car, the likelihood of getting approved is small. They can reject your application due to poor credit scores or having no credit history.
Unfortunately, many people have dismal credit scores. Even if you do have good records, it could still take the bank weeks to approve your loan.
What do you do if you have to pay hospital bills or rent within 72 hours? You can’t wait for bank loan approval.
The solution is to apply for a payday loan.
But what are payday loans and how do payday loans work? How do payday loans differ from bank loans and what are their respective pros and cons? Let’s dive straight into the answers:
How Do Payday Loans Work?
Payday loans are quick loans set for a small amount. Most payday loans go from 50 CAD to 1,000 CAD. As the name suggests, you have to pay these loans back on your next payday, which for many is within two weeks.
There are two major advantages with payday loans: they don’t require you to have a good credit score and they only take 24 hours to approve or reject your application. These are quick solutions to help you pay an emergency bill.
However, there are downsides to payday loans. If you can’t pay the loan back by the given due date, you’ll suffer high-interest fees as a penalty. This isn’t a scam — it’s an incentive to ensure you pay on time!
You also don’t need to apply for the loan in person. Most payday lenders accept online application. If you get approved, they’ll directly deposit the amount into your bank account.
This means you need to share a few details, such as your name and bank account. Let’s discuss those and other payday loan requirements next.
Requirements for Payday Loans
As mentioned, you don’t necessarily need an amazing credit score to get a payday loan. These aren’t long-term loans, after all, so the lender doesn’t need proof you can pay the loan over several months or years. They only need proof you can pay the loan by your next payday.
Instead of digging into your credit history, payday lenders require you have a stable income. You need to show employment for the past three months. Some lenders require a minimum monthly income; if you don’t earn as much as they require, you won’t qualify.
Other requirements include
- Proof of identity
- Be of legal age (18 years or older)
- Be a Canadian citizen
- Canadian bank account at least 3 months old
- Direct deposits from employment
You should also not be in bankruptcy or on the edge of bankruptcy. This also means you won’t qualify if you have too many short-term loans or non-sufficient funds transactions in your account.
Since you need to provide proof of age, you’ll need an ID like your driver’s license or employment ID. This will also help lenders verify the amount goes to a bank account in your name.
What Doesn’t Qualify?
Keep in mind that not all direct deposit sources qualify for a payday loan. Money coming in from social assistance, disability income, self-employment, and private pension don’t qualify. Child tax and student loan income also don’t count towards getting a payday loan.
Why don’t these qualify for payday loans?
One of the main reasons you can’t get a payday loan while relying on these financial sources is because they’re meant to be supplemental income. They’re not supposed to be your main source of income. Payday lenders look for income from a primary source, such as the government or private employer.
Why can’t non-Canadians get a payday loan?
Keep in mind these are short-term loans. It’s unlikely for a tourist to have three months’ worth of income from an employer. Lenders also fear that the lender might fly back to their home country before paying the loan.
When to Get Payday Loans?
When should you consider getting payday loans? What are the benefits of getting one?
The most common reason people get payday loans is to pay an emergency bill. Say for example you have to pay your Internet bill by the weekend but you won’t get your pay until a week later. If you don’t pay that bill, your provider might disconnect your Internet connection or add incredibly high-interest fees to your next month’s bill.
The solution is to get a payday loan. Get the loan in 24 hours and then pay the bill to avoid penalties. Once you do get your pay, settle the loan so you won’t suffer interest charges.
Getting a payday loan can also help build your credit score. Each time you pay a loan on time and for the right amount, your credit score improves. This is a good solution for people with abysmal scores.
Apply for Payday Loans Today!
How do payday loans work? Hopefully, this guide provided all the answers you seek.
Payday loans are great solutions for short-term financial problems. You can rely on them to pay emergency bills or when your salary isn’t due for a couple more days. The best part is that they don’t require a good credit score and you can get the money in a day or two.
Of course, these aren’t the only situations you might need a loan. Have you ever considered whether you can use a personal loan to pay for a car? Check out our take on the topic right here!