Simply put, payday loans are a service offered that allows individuals to borrow cash in order to cover bills and expenses that fall before their next payday. Payday loans are a great service to use in certain circumstances, however it is important that users understand how they work before jumping in.
In case you are wondering what is a payday loan, here’s a crash course on all you need to know:
1. Application process
To understand what a payday loan is, let’s discuss the application process first. Payday loan businesses exist in both brick-and-mortar and online formats. Individuals who are in need of a small or medium sum of cash quickly can apply for a payday loan, usually by providing the following information:
- Basic personal information. This includes your name, age, date of birth, address , and phone number
- Loan information. How much would you like to borrow? Some companies may also ask what you are borrowing the money for. In addition, they’ll need to know when you can pay it back by.
- Employer or income information. Most payday loans won’t approve you unless you have some form of consistent income. In order to qualify, you’ll need to provide information like who you work for, what you do, what your monthly income is, and how long you’ve been working there for.
- Proof of identity. You’ll usually need some physical pieces of ID on hand. Online, you may have to scan or send photos of your ID or other documents to prove who you are.
- Additional information. Every company is different. Some companies will ask you additional information, such as: qualify your credit (good, average, poor), Social Insurance Number, or a character reference.
2. How payday loans work
Once your application has been approved, the company will give you money via direct deposit. It usually ends up in your account within 24-48 business hours, barring any issues with your application or errors on the company’s part.
When the date comes for you to repay your loan, you’ll have to pay back the amount of the loan in full plus whatever the company charges for fees. If you do not pay the loan back in full by that date, you will begin to accrue interest, usually at a fairly high rate. This is why it is important to use payday loans only for short-term loans that you are positive you will be able to pay back on time.
3. How payday loans charge
Payday loans charge a flat fee depending on the amount of money you borrow. This fee can range greatly, but is often between 10 and 20 per cent of the amount borrowed. The company may also calculate their fees as a dollar amount per $100 borrowed. For instance, the company may charge $10 per $100 loaned. This means that if you borrow $1000, you will have to pay back your loan plus $100 in fees by the agreed date.
4. Who is eligible for payday loans?
Although payday loans are often promoted as loans that virtually everyone will be approved for, there are a few eligibility requirements that potential borrows must pass before they can be approved.
Must be 18 or older. In Canada, 18 is the age of majority, which also technically means it is the age at which an individual is considered capable of being completely fiscally responsible.
Canadian citizen. Payday loan company’s in Canada require that you be a Canadian citizen in order to borrow from them.
Have a job. Payday loans are considered high-risk loans. They are built around the concept that the person is low on their finances, and there is no collateral for the loan. For this reason, payday loan companies do everything they can to ensure borrowers have the means to pay back the loan.