Category Archives: Loans

What is a Payday Loan?

A payday loan, which might also be called a “cash advance loan” or “check advance loan” is a short-term loan for a small amount, usually ranging from $100 to $1,500. Typically people take out these loans to fund expenses that are due and need to be paid off before their next paycheck arrives. In that situation, people borrow just enough money to get through to their next payday, which is when the loan is due.

Payday loan businesses may take postdated checks as their collateral in case you are unable to pay back what you borrowed. This means that the borrowers need to write a post-dated personal check in the amount they want to borrow, in addition to a fee for borrowing the cash. The lender immediately advances the customer funds, but holds onto the check and cashes it on the agreed upon date, which is usually on the borrower’s next payday.

Is a payday loan for you?

Most borrowers using payday loans have bad credit and low incomes. Many don’t have access to credit cards and take out these loans to avoid costly bounced checks, overdraft protection fees, and late bill payment penalties.

You can get this type of loan from a business that is not a bank, usually from a loan store. Generally these businesses charge a large fee for the loan, making the interest rate on the loan very high. The cost of the loan may range from $10 to $30 for every $100 borrowed. If the fee was $18 per $100 for seven days, this is equivalent to a rate of more than 900% on an annualized basis. By comparison, APRs on credit cards can range from about 12% – 30%.

Since payday loans charge a very high interest rate, it is advisable to see if you have other alternatives before taking out a payday loan. Increase your income by finding another job or cut down unnecessary expenses to free up your cash.

Read here on how to get a payday loan.

What happens if you don’t pay back a payday loan?

Before you take out a payday loan, it’s very important to fully understand the terms. Payday loans have high penalties because the lender is taking a large risk by lending to people without running credit checks. Different lenders have different approaches when you do not repay your payday loan on time. Some lenders will allow you to “roll it over” so that the loan is extended. Although you do not have to pay off your loan right away, fees will keep accumulating until you do. Lenders will continuously try to take the money from you until you are able to fully pay back what you owe. As soon as you have problems repaying your loan, talk to your payday lender and try to arrange a viable repayment plan.

It’s also a good idea to check whether your payday lender is a member of a trade body such as the Consumer Finance Association, the Finance and Leasing Association, the Consumer Credit Trade Association or the BCCA. Many of these associations have a charter where its members have to follow stringent rules, such as:

a) Tell borrowers how the loan works and the cost of the loan before they apply
b) Freeze interest and charges if they make repayments under an agreed and reasonable repayment

Debt collection
If you have not paid back your loan within a certain amount of time, the payday lender may pass your case onto a debt collection agency. This can be stressful as you are likely to start receiving a lot of letters, phone calls, and even home visits demanding the money.

Complain

If your payday lender is using aggressive debt collection practices, or you think you’re being unfairly treated, you can write a complaint stating why you think the lender is not adhering to the Office of Fair Trade’s irresponsible lending guidance. If you do not receive a satisfactory response within eight weeks, you can escalate your complaint to the free and independent Financial Ombudsman Service, which settles disputes between lenders and consumers.

What are Personal Loans?

As interest rates on credit cards increase to as high as 30%, people continue to look for alternatives to credit cards.  One such alternative is a personal loan, which is one of the many ways for an individual to borrow money. Generally, the borrower receives a lump sum payment from a lender and makes monthly payments to pay it off. There is a fixed payment and a fixed payment schedule.

Personal loans have a fixed amount.
Personal loans are usually small loans and can be used to finance anything, such as a car, renovations to a home, unexpected expenses, or a variety of other things.  The amount you are able to borrow for a personal loan can range anywhere from as low as $1000 to as high as $50,000. How much you are able to borrow depends on the lender and your credit rating. The better your credit score, the more money you can borrow for a personal loan.

Personal loans usually have a fixed interest rate.

Although some personal loans come with a variable interest rate that changes periodically, most personal loans have fixed interest rates. This means the interest rate is locked and doesn’t change for the term of the loan. Similar to the loan amount, interest rates on personal loans are dependent on your credit rating. The better your credit score is, the lower your interest rate will be.

Personal loans have a fixed repayment period.

A personal loan is typically a short term loan between one to five years. Repayment is a fixed amount of monthly installments over a set term. Longer repayment periods lower your monthly loan repayment, but they also mean that you pay more in interest for borrowing longer.

There are also two types of personal loans: unsecured loans and secured loans. Read more about them here.

Here are some of the reasons why people take out personal loans:

  • They have no or bad credit.
  • Pay less interest. Depending on your credit score, some personal loans will come with a lower interest rate than credit cards. Read more about personal loan interest rates.
  • They want to consolidate a number of other loans into one loan. This will allow them to make one payment instead of multiple payments. This type of loan is also called a debt consolidation loan.