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Many people in debt seek to alleviate their situation by requesting assistance from individuals or organizations that lend money. A borrowed sum of money which is expected to be returned along with an interest is considered a loan.
This article aims to explain the functioning and showcases the truth about payday/high-interest loans. Payday loans are a short-term, unsecured type of loan, and lenders can offer high-interest loans without actually going through the credit score of the debtors.
Whats Are Payday Loans?
Payday loans are loans of a small amount of money and high-interest rates. They are often unsecured and short-term. Payday loans can generally cost around $300 or $500 dollars that are due on the borrower’s next payday. The truth about payday loans is that although they are a good option for urgent cash expenditures, this type of loan can be difficult for someone to pay off later on, due to its high-interest rates.The Advantage Brought by Payday Loans
Payday loans serve as a quick solution for short-term payment urgencies. Payday loans can be paid either in cash or electronically. Usually, the debt is paid all together; however, in some cases, lenders may allow borrowers to pay back in installments over a more extended period of time. Even people with poor credit scores and histories can benefit from payday loans since the application process is more flexible. On their next payday, borrowers must pay back the entire amount including any additional fees placed in the check.The Downside of Payday Loans
The truth about payday loans is that each Canadian province and territory sets their own rules and regulations regarding what fees or annual percentage rates can be set by the lenders for these short-term loans. If a person cannot afford to pay out the debt amount along with the fees, there are extra charges for each extra day that goes by. For instance, provinces may allow charging different percentages for interest rates, which can significantly increase the final amount of money people owe. Aside from the percentage of extra charges and fees, provinces may also regulate the number of loans someone can apply for through a single loan company. Due to the different regulations, people in debt who intend to go for payday loans as their debt relief option should be careful with lenders that offer services online – these professionals may not follow provincial regulations carefully, and in many cases, they are not licensed to provide payday loan services. One of the downsides of payday loans is collection agencies. If a borrower does not pay the total amount, the lender goes to court or sells the loan to a collection agency that will then proceed to sue the person in debt. Collection agencies can garnish the borrower’s wages and seize their property as punishment for not paying the loan. Besides, when a lender sells someone’s loan to a collection agency, that negatively affects the borrower’s credit score. More often than not, people who apply for payday loans and do not instantly pay their lenders back end up stuck in a payday loan cycle, which is challenging to end since the debt only keeps accumulating and growing.How Payday Loans Work in Ontario
In the province of Ontario, it is relatively easy for people in debt to apply for payday loans. In general, the application process requires potential borrowers to:- Aged 19 years old or more
- Reside in the province
- Be an active worker with regular paychecks
- Have an active bank account
What Happens to Payday Loans if You Have Filled for a Consumer Proposal
Consumer Proposals are a unique solution for people to consolidate their many debts into a single payment. These separate payments can be student loans, credit cards, income taxes, personal loans, overdrafts and payday loans. If a person in debt owes money to a lender upon filing for a Consumer Proposal, this pending payment is included in their proposal and forgiven once the proposal ends. Also Read: CRA Can Freeze Your Bank Accounts – Here’s How To Avoid ItWhat Are High-Interest Loans?
High-interest loans promise a fast solution for potential borrowers and provide an easy application process without checking credit scores. Unfortunately, someone with bad credit may have to resort to lenders for a high-interest loan payment as their best available option. A high-interest loan means someone borrowed money to cover a risky loan they had to pay for. Secured loans, such as personal loans or lines of credit, offer interest rates as low as 6%. In comparison, unsecured loans offer a higher interest rate that fluctuates significantly – while overdraft charges can be placed at 21% interest rates, company loans can have 31.99%, along with fees and extra costs. Quick cash instalments can have a rate of up to 60%.Avoiding High-Interest Loans
What Affects the Final Cost of a Loan?- The amount of money borrowed.
- The length of time for the loan to be paid back (also known as “loan term”).
- If the payments will be made every week, every month, or every two weeks – depending on the timeline arranged between the borrower and the lender or bank.
- The interest rate directly influences the repayment amount, which includes any extra fees.
- The interest rate: besides the borrowed amount of money, debtors must pay the interest rate for their loan. Even if they took a loan for a credit card, mortgage, or car, the final interest rate would influence determining if the loan is of high interest.