If you’re out of money and the payday’s still days away, a payday loan might help you get through. Cash advance loans or payday loans refer to borrowing your next pay from a lender. It means lenders will give you funds based on your credit score and paycheck.
This is a type of short-term loan, but with high-interest rates from non-bank institutions. Your payday loan is also due on your payday. Although it can give you immediate funds, you must study and compare different payday loans in Canada for the following reasons:
- Choose The Best Interest Rate
As mentioned, payday loans have high interest rates that can spike to a 400% annual rate. This happens when you don’t immediately pay your payday loan on the set date. Some companies even have a fixed fee that charges a high amount even when you pay your loan at an earlier date.
As a result, more Canadians end up borrowing again to pay their outstanding loans from companies that charge high-interest rates. It then becomes a cycle that may wreck your finances. But if you compare different payday loans in Canada, you can choose that which has the lowest or most reasonable interest rate.
You can compare payday interest rates by doing these:
- Know The Essentials – You have to be aware of the APR or annual percentage rate. The APR lets you know how much your loan could cost in a year. To calculate your APR, divide the interest rate by the amount you’ll borrow. Then multiply your previous answer to the number of days in a year or 365 days. Divide the latest answer to the number of days you have to pay your loan. Lastly, put the decimal point two spaces to the right. For instance, if you’ll borrow CAD 500 with an interest of CAD 80 due for 15 days, you’ll have an APR of 413.67%.
- Use Loan Comparison Tools – If you don’t want to calculate the interest manually, you can use online loan comparison tools. You only need to enter data such as the principal amount, length of payment, and interest. This is best when you have many payday loan company options.
- Request for Loan Estimates – If you want accurate details of your future loan, you can ask for the company for a calculation or loan estimates. At Friendly Lender, you only need to fill up a request form that the site can use to match up with a lender. Included in the result will be the estimation of your loan. Then use the data you’ve collected to compare and choose which offers low-interest rates.
- Assess Ability To Repay
When you compare different payday loans, you’ll get an idea of their payment terms, interest, and other fees. These pieces of information are essential to assess whether you can pay your loan on time. If not, you’ll know whether you can endure its long-term effects, one of which is potentially destroying your credit rating (more on this below).
Knowing whether you can repay your payday loan is vital so that you can weigh whether a payday loan is good for you. You will learn the following when you’re comparing various payday loan companies to help assess your ability to pay:
- Repayment Options – You can either pay in full or even pay earlier, depending on the repayment methods the company offers. Other payment options include loan renewal or loan refinancing. Loan renewal or rollover lets you extend your due date to the next payday. However, you’ll incur more costs for an extension. For loan refinancing, you’ll get a new loan to pay off your loan within a longer period or installment terms. Choosing payday loan companies with this repayment method can help you when you can’t pay your loan fully.
- Interest Rate – For payday loans, the usual interest rate is between 15% to 20%. This will be your basis when computing your total loan. Knowing the estimated loan total can help you borrow the amount you can pay on your payday. Say your pay is CAD 1,000 and you’ll use CAD 400 for your expenses; you’ll be left with CAD 600. Then you should not borrow more than CAD 400, so you can have extra cash after repaying your loan.
- Hidden Charges – Before applying for a loan, what you’ve calculated might be lower than the actual loan that they’ll charge for. This is because of hidden charges such as customer service fees, loan-application fees, returned check fees, and customer service fees. Verify these first with your lender so you’ll set your budget accordingly.
- Avoid Destroying Your Credit Rating
A credit score simply indicates if you’re a good or bad debt payer. Your credit history reflects whether or not you’re paying off your loans accordingly. Your credit score will rely on the amount of your debt, credit limits, types of loans, the length of your loans, and your payment history.
Banks and lenders use your credit score as a basis for your loan approval. So if you have a bad credit score, then you’ll more likely get a rejected loan application. Higher credit scores are the best, but 580 to 850 credit scores are still good.
When you have a good credit score, you’re more likely to get a job, housing or rental opportunities, and business loans. This is why comparing and availing of the best payday loan from a lender helps protect your credit score. For instance, if you haven’t done your research and borrowed money from a lender who has high-interest rates and hidden charges, you might get trapped.
If you repay your loan on time or earlier, it won’t affect your credit score. This is because payday loans in Canada don’t appear in the major credit reporting agencies such as Equifax, Experian, and TransUnion. However, if you fail to repay your payday loan, debt collectors may process your record. When this happens, collection agencies will forward your report to the major credit reporting agencies. As a result, your credit history will have a bad record, which can lower your credit score.
Making yourself knowledgeable about payday loans and comparing different lenders is a vital step before borrowing money. It’s best to do your research on the following lenders so you can save yourself from falling into the debt cycle. It’ll also help you keep a good credit score as you can choose the lender who has an offer you can quickly pay back.
Comparing different payday loans in Canada may take time, but it’ll save you from going broke.