Annually, about 2 million Canadians resort to payday loans. The main reason many people resort to loans is that they’re living paycheck to paycheck. In other words, their salaries won’t even suffice to cover any expenses up until the next payday. (1)
Most people loan money if there are sudden expenses popping up, and they have set no money aside to cover it like emergencies or hospital bills. In this case, you need list of online payday lenders to get money fast as you don’t have time to go through the intricacies when borrowing money from a bank. This is where payday loans come in. But what exactly is a payday loan, and why do many Canadians resort to this type of loan?
What is a payday loan?
Unlike any other type of loan, a payday loan, which is also referred to as check advance loans or cash advance loans, is short-term with a high-interest rate. The amount you can borrow from a lender and the interest rate will usually depend on your income.
What’s good about payday loans is the fact that the lender won’t require any form of collateral, making it a type of unsecured loan. But then again, you have to keep in mind that the interest can run as high as 381% annual percentage rate (APR). (2) (3)
Tips to pay off your payday loan fast
Payday loans are an excellent solution if you need money fast and you’re certain that you can cover the high-interest rate imposed by the lender. However, if you want to continually avail of payday loans in Canada or wherever you’re from, you have to make sure that you have a good reputation as a borrower. One way to do so is to pay your loans fast. Here are some tips you can consider from the get-go:
1. Inquire about an extended payment plan
If you realize that you can’t pay off your loan on time and don’t want the interest rate to increase further, ask the lender about an extended payment plan (EPP). An EPP basically gives you more time to pay off your debt without additional fees or interest. An EPP gives you four extra days to pay the loan, giving you more time to think about how you can pay off your loan.
Depending on the province you’re in, some lenders will offer you this payment plan. For instance, if you’re in Ontario, the lender will provide you with an EPP option if you’ve taken three payday loans within two months.
2. Find an additional source of income
Before you ask about an EPP, it’s important that you already have a plan to pay off any debts you have, even before taking out a loan. One effective plan to pay off loans fast is to find an additional source of income.
Finding an additional source of income extends beyond looking for another job. Even selling old pieces of furniture or clothes on e-commerce websites can help you acquire extra money. The purpose of your extra money should be geared toward paying off your debt. This way, you won’t have to depend on your salary to pay off your loans, which will trap you in a vicious cycle of paying loans and borrowing in the long run.
3. Pay debt before saving
While it’s financially responsible to have a financial cushion in case of emergencies, it won’t make sense saving money if you have existing debt. So before taking a payday loan, make sure you assess your savings first, if you have any. If your savings don’t cover your expenses, take out a loan that will cover the expense. After your next payday, ensure to focus your financial effort to pay off the debt before saving again. By doing so, you can save a lot of money as you can avoid paying hefty interest fees.
4. Practice frugal living
Many people can base frugal living on a person’s lifestyle. For instance, if you just graduated from college and you’re not yet financially ready to face the adult world, living with your parents might be the best example to live frugally.
Moreover, frugal living can also be interpreted as cutting any unnecessary expenses. For instance, if you’ve just taken out a payday loan and you want to pay it off fast, re-evaluate your budget by refraining from shopping or going on expensive trips. Try to assess your budget so you can find areas that need to be cut down. Remember, it’s advisable to pay off your loan first before anything else.
5. Be wary of the lenders’ advertising method
Since payday lenders are basically running a business, it’s important that you’re wary of their advertising methods. Indeed, it can be difficult not to be persuaded by their marketing tactics, especially if you’re short of funds. So instead of immediately resorting to a loan, try to assess first if you really need it in the first place.
As a reference, here are some cases where it’s wrong to take out a loan:
- You have two or more existing loans.
- You want to use a loan to pay off an existing loan.
- You want to use the loan for things you don’t need and afford, like concert tickets and new apparel.
- You’re not sure if you can pay it off on time. (4)
Even if payday loans have high-interest rates, there are plenty of ways to pay them off fast, allowing you to avoid any additional fees. By following the tips above, you can rest assured that you can pay any loan you may take without further hurting your pocket. Although following the tips above can be difficult, it’s going to be help you financially.
Before taking out a loan, it’s important to talk to a financial adviser first. These professionals will help you get your finances back on track and even recommend a monthly budget that’s suited for you. This way, you won’t fall into the cycle of borrowing and paying loans.
- “How Payday Loans Work (+ Tips for Paying Them Off Fast)”, Source: https://www.creditcanada.com/blog/payday-loans-the-good-the-bad-and-the-ugly
- “Payday Loan”, Source: https://www.investopedia.com/terms/p/payday-loans.asp
- “FOUR ACTIONS THAT CAN HELP BREAK THE PAYDAY LOAN CYCLE”, Source: https://www.seattlecu.com/blog/four-actions-that-can-help-break-the-payday-loan-cycle
- “Payday loans – what you need to know”, Source: https://www.moneyhelper.org.uk/en/everyday-money/types-of-credit/payday-loans-what-you-need-to-know