A payday loan is a small, short-term loan due on the borrower’s next payday. This type of loan is perfect to help navigate a mid-month cash emergency. Borrowers can submit an online loan application and be approved the same day. They repay the principal with an additional fee after they receive their next paycheque.
With a simple online application process, same-day processing, and no credit score requirements, payday loans are an attractive option for anyone who needs funds urgently. However, when it comes to financial decisions, it’s a good idea for borrowers to understand what they’re signing up for before they apply.
Here are a few dos and don’ts to keep in mind when applying for a payday loan online.
Do borrow from reputable lenders
Payday loans may be offered by different lenders both online and offline. However, payday lenders must possess a valid license to issue payday loans in any Canadian province or territory.
Borrowers must do their due diligence and research the lenders they’re considering. Ensure the lender is licensed and reputable. Go a step further and look at online reviews of the lender before applying for a payday loan.
Don’t skip the fine print
The loan agreement is a legally binding contract, so it’s not a great idea to sign it without understanding the terms. The loan agreement contains all the information a borrower should know about the loan, including the terms, fees, and more.
Don’t hesitate to ask for an explanation of any confusing or unfamiliar terms in the agreement. After all, it’s important to understand all the fees and charges associated with borrowing a payday loan.
Do update payday details, if needed
Borrowers can easily update their payday details by contacting the lender’s customer support team. They’ll ask for a bank statement or paystub that verifies the new payday.
A borrower who suspects they cannot repay the loan should contact the lender immediately to discuss their options.
Don’t borrow more than what’s needed
A payday loan is a high-interest loan. The larger the loan, the higher the fees. Though the limit on payday loans is $1,500 in Canada, interest caps vary based on the province or territory the lender is operating in.
To avoid paying high interest, it’s probably safest to borrow what is required and no more.
Do reserve payday loans for emergencies
Payday loans work best as a source of emergency funds. These are short-term, high-interest loans making them unsuitable for non-urgent expenses or discretionary purchases.
Use a payday loan to cover the cost of utilities, rent, groceries, or other urgent and essential bills that cannot be deferred. Borrowers should always ensure they can repay what they owe using their next paycheque.