With the rising cost of – it seems – almost everything, many of us in Canada are struggling to make ends meet. Unfortunately, this often means when an emergency expense hits we don’t have the funds to cover it. With this being a reality at the moment, payday loan companies have been popping up across the country and worldwide. Providing quick cash through an online interface enables us to get some extra cash to tide us over to payday.
What are Payday Loans?
Online payday loans work in a very similar way to standard payday loans. A payday loan (also called a payday advance) is a small, short-term unsecured loan, regardless of whether repayment of loans is linked to a borrower’s payday. The loans are also sometimes referred to as “cash advances”, though that term can also refer to cash provided against a prearranged line of credit such as a credit card. Payday advance loans rely on the consumer having previous payroll and employment records. Legislation regarding payday loans varies widely between different countries and, within Canada, between different provinces.
To prevent unreasonable and excessive rates of interest, some jurisdictions limit the annual percentage rate (APR) that payday lenders can charge. The APR is typically substantially higher than credit cards since payday loans often carry substantial risk to the lender, with an average loan default rate of 10-20%.
Before the internet, the standard process for these loans involved a lender providing a short-term unsecured loan to be repaid at the borrower’s next payday. Typically, some verification of employment or income was involved (via pay stubs and bank statements). In this traditional retail model, borrowers would physically visit a payday lending store to secure the small cash loan, with payment due in full at the borrower’s next paycheck. The borrower was responsible for paying back the amount borrowed plus fees (interest).
With the more recent innovation of payday loans online, consumers complete the loan application online (or in some instances via fax, especially where documentation is required). The loan is then transferred by direct deposit to the borrower’s account or PayPal and the loan repayment charge (interest) is electronically withdrawn on the borrower’s next payday.
The Law in Canada
Payday loans (online and traditional) in Canada are permitted under section 347.1 of the Criminal Code of Canada, so long as the province of the borrower has enacted provincial legislation concerning the provisioning of payday loans. Quebec and Newfoundland have not developed any laws so payday loans in these provinces are limited by usury laws, with any rate of interest charged above 60% per annum considered criminal.
In Canada, there have been legal cases against payday loan firms. On August 14, 2006, the Supreme Court of British Columbia issued its decision in a class action lawsuit against A OK Payday Loans. A OK charged its customers 21% interest, as well as an administration fee of $9.50 for every $50.00 borrowed. In addition a deferral fee of $25.00 for every $100.00 was charged if a customer wanted to delay payment. The judge ruled that the processing and deferral fees were interest, and that A OK was charging its customers a criminal rate of interest. The payout as a result of this decision is expected to be several million dollars. The British Columbia Court of Appeal unanimously affirmed this decision. This demonstrates that payday loan companies need to operate carefully as provincial governments are trying to crack down on them across the country.
When applying for payday loans online can be useful for you…
If you’re considering applying for an online payday loan, it’s advisable to always understand that you will pay a lot of additional money for instant cash. Payday loans are a booming industry across the world as they make money from high interest rates and fees.
They can come in handy if you are really struggling and there is a major emergency where you need cash. If you don’t have a credit card and can’t borrow the money from anywhere else, a payday loan can be an alternative you may need to consider. If you know that once you get paid you’ll have the money to pay what you owe in full then there isn’t a major issue with applying for one.
As long as you understand all of the terms and conditions you’re agreeing to and that you are comfortable with, you can go ahead and sign on the dotted line this time. Since online payday loans probably offer the quickest access to cash, they are an option that has its place in the world of debt.
Areas of Interest to Consider
For good reason, payday loans are criticized a lot in the media. Since a number of cases have emerged where individuals have been taken advantage of, it is always recommended that you do your research before you sign up for one.
Here are the some popular complaints of payday loan firms –
- They often target low-income communities – statistically speaking many people who use payday loans are low-to-middle income people with few assets. These individuals are least able to secure normal, lower-interest-rate forms of credit. Since payday lending operations charge higher interest-rates than traditional banks, they have the effect of depleting the assets of low-income communities. If you do have a low income, just ensure that you will be able to pay back what you owe when you owe it. If you genuinely need the money instantly but will be able to pay it back once you get paid, that’s fine. However, if you know you won’t be able to, try to avoid using this service which will put your further into debt.
- Track record of aggressive collection practices – this behaviour is seen more in other markets, such as the UK, but there have been instances in Canada where individuals who’ve taken out a payday loan have been aggressively contacted for collection. In the US, a payday lender by law can use only the same industry standard collection practices used to collect other debts, specifically standards listed under the Fair Debt Collection Practices Act. A small percentage of payday lenders have, in the past, threatened delinquent borrowers with criminal prosecution for fraud which has created a bad reputation for the industry as a whole.
- Pricing structure of payday loans – as noted above, payday loans come with a very high interest rate. Issuers of payday loans defend these high rates by saying processing costs for payday loans are proportionally higher than other loans. They argue that conventional interest rates for lower dollar amounts and shorter terms would not be profitable.
- Ease of access of payday loans online – now with the ability to apply, be approved and receive money instantly, it’s almost too easily for people who mismanage their money to get access to these funds. This creates a scenario where a person may act on impulse and take out one of these loans without thinking about it in detail. By the click of a button, money is transferred but the individual may not have sufficient time to consider the implications of taking out this loan and additional charges they are agreeing to bear.
Who Provides Payday Loans Online in Canada?
The payday loan industry is an enormous one across North America and globally. Some of the largest payday loans firms include –
This firm provides customers with their first loan with no interest charges or fees. If the loan is paid back on time, nothing else will be charged. They offer an online facility to apply online, fast approval and the funds are automatically transferred to your bank account.
A payday loans firm that started in the UK and services Canadian’s through its www.wonga.ca site. The firm has operated in Canada since 2011 and offers short term loans online with more speed, convenience and flexibility than banks and other websites. If approved, you can receive funds within an hour using E-mail Money Transfer or next business day using fully automated Bank Transfer.
This is one of the longest standing Canadian payday lenders, with its business originating in the payday advance area through physical shops. It now offers an online service for residents of Alberta, British Columbia, Nova Scotia, Ontario and Saskatchewan.
For all of these Canadian payday loan providers, your APR will be assessed on the amount of money you want to borrow as well as the length of time you need to pay it back. Remember that payday loans may help you out in a time of needs. Although the process of applying for one online is easy and straightforward, it also binds you to a serious commitment for paying the money you borrowed back as well as the agreed interest. When considering a payday loan, read the fine print and then make the decision that feels best for you.