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Payday Loans Canada

Payday loans Canada

Payday loan is a small, short term loan. The lenders charge their fees and process the amount in no time. It is given in cash and secured by post dated check. The check includes principal amount plus accrued interest. On maturity the borrower can pay back the amount either in cash or let the check get payment from the bank. A $100 payday loan for 14 days comes up to $115. This could be paid back on or before due date either in cash or through check. If the loan is not paid, then it is rolled over for the next 14 days, after charging some fee. But interest on it accumulates very fast. Several companies have however restricted the number of roll over to a maximum of three times and most of them donít allow another loan till the previous one is settled.

Canadian payday loans are just like American payday loans. Since most American companies didnít lend Canadians, many companies came up for their cash requirements. This subsequently grew to a billion dollar industry and now there are about 1300 outlets of payday loans across Canada. The process to borrow payday loan is also easy. For Payday Loans Canada only residents of Canada with an active bank account (most companies require five to seven transactions from that account), a working phone, and a pay stub are needed. The processing time varies from half an hour to twenty four hours. When the processing of a payday loan is compared with that of banks, it proves much faster. No credit check, simple procedure and fast result make payday loan an attractive option for fast cash. The borrower shows his bank statement and pay stub, offer a post dated check and gets the cash. The loan approved is proportional to the income of the borrower.

Payday Loans Canada is so popular with the borrowers that they are more aware of its administrative fee and interest than any other financial institutionsí. Itís also popular because it helps people with bad credit record and the bankís inefficiency to provide small, short term loans. These reasons have brought this business to such a colossal proportion.

Generally small, short term cash is required from young and hard working people, who have full time job but their household income does not exceed $30000 per annum whereas average household income of Canada is about $54000 p.a. In this income group, small short term loan requirement is natural and payday loan solves this problem.

But payday loan is not without criticism. It is said that payday loan charges a very high interest rate and targets young and the poor who are not in a position to calculate TMV or Time Value for Money. Payday lenders are also alleged as loan sharks. [Loan sharks are in fact those individuals or organizations who offer illegal, unsecured loan at high rate of interest. Payday Loans Canada Companies are charged for levying criminal rate of interest and are accused of breaking the law because almost all of them basically operate in the same manner. It has also been alleged that these companies typically inform borrowers about interest fee only, whereas they add handling fee, administrative fee, finderís fee, brokerage fee etc., which takes the interest to a criminal range and flouts the federal law of not collecting more than 60% p.a. Payday loan is, in fact, paid back several times as fees. It is an endless trap.

Payday lenders have their own arguments and they refute all the charges leveled against them. They say that payday loan is a small, short term loan and to convert it on Annual Percentage Rate or APR is meaningless. It is just like calculating the annual intake of a person or calculating rent of a hotel room on an annual basis. Payday Lenderís Association has been requesting federal government of Canada to increase the rate of interest for small, short term loan because the existing limit of interest could in no way cover their cost.

Payday Loans Canada is for short term needs and are not intended or recommended for longer periods. It is also suggested that this loan should be borrowed only up to the manageable extent so that it could be fully paid back at the time of maturity. If loan for a longer duration is required then it is suggested to tap other sources like borrowings from employers, friends and family members or bank overdraft, line of credit, cash advance on credit card, consolidating debt at bank etc. It is also advised that persistent borrowers should take credit counseling.

Payday loan association has also tried to make their functioning efficient and transparent. It is in favor of clear and full disclosure of charges, collection of dues in a fully professional way, educating the use of loan and availability of debt counseling services. They have also provisions of penalties for those members of the association who violate its code. But this code has come a little bit late and released only after an organization of low income group people demanded for immediate government action to bridle this industry.

Though it is indicted that payday loan charges criminal rate of interest and violates the federal law of Canada but when it is compared with other institutions, the charges levied by them comes far short of others. A bounced check of $100 collects $48 fee, which is 1251%, a $100 credit card balance charges $26 as late fee, which comes to 678% and a $100 utility bill, in case of non-payment charges $50 as late or reconnection fee, which comes to 1304%. Payday loan of $100 collects only $15 fee, which is only 391%. To take loan at the rate of 391% to save the interest of 1304% is much more economic and an intelligent decision. This loan should be borrowed only on such occasions and paid back without allowing it to roll-over.

Payday loan does what the banks do not. Some people suggest that this loan should be avoided completely. But it could be availed after an astute decision.

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