You’re not going to be purchasing one of the Toronto homes for sale with a payday loan – these loans are for the short term, frequently used by those who need to get through a rough financial spot. But there are very few situations in which they’re actually a good idea. Companies make money off the fact that people are desperate to borrow even just a small sum to make it through their next payday.
To get the loan, the borrower can apply online, on the phone or visit a store. They must have a checking account, phone number, proof of income and valid ID. The borrower, once approved, writes a check to the business for the amount they want (usually up to $500) plus the fees and gives the lender authorization to debit the funds from their bank account on their next payday, typically two to four weeks. If it’s all paid back by that date, it’s done, but if the borrower doesn’t have all the money, they may extend or renew the loan.
Very High Interest Rates and Fees
The interest rates on payday loans are extremely high, with the exact amount depending on where you plan to take the loan out. In some states, like Ohio, Utah, Idaho, Virginia, Texas and Nevada, that rate is nearly 700 percent, according to CNBC. They cost more in interest in just one month than a credit card would in an entire year.
There can be other penalties too – if the company deposits your check and you don’t have the funds to cover it, you’ll get hit with a nonsufficient funds fee too. One study by the Consumer Financial Protection Bureau revealed that four out of five payday loans are renewed within 14 days, which means the borrower is paying even more in fees that the amount of the original loan.
Loan Shark-like Tactics
Borrowers that don’t read all the fine print may be rather unpleasantly surprised if they find themselves unable to pay the loan back. Lenders can and do pursue all legal options, including all sorts of harsh collection tactics. They may sue in civil court and garnish wages or bank accounts. Borrowers can be under serious threat of financial ruin when it comes to paying back the high-interest loans.
Credit Score Damage
While a payday loan is unlikely to show up on a credit report, odds are it will if it is turned over to collections, damaging one’s credit score.
Don’t Be Fooled
Using payday loans regularly is a huge red flag that there is a serious financial problem that needs to be dealt with before it digs the borrower into an even deeper hole. After you take one out, the payday loan company will usually try to win your business again by offering increasingly larger loans. Don’t be fooled – they’re never a good deal. Instead, take control of your finances now, before it’s too late.