Payday loans are offered by local and regional providers and go with very high fees and interest rates. Unless you face an emergency such as hospital treatment or medical bills, it is better to look into other options such as unsecured consumer loans, credit cards and lines with affordable rates, etc.
Obviously, the high interest rate means that you pay a lot in charges, making borrowing very costly. Another issue is the short repayment period which can be as short as 2 weeks. You only have this long to pay off the balance, plus interest and additional charges. Another reason to avoid payday lenders is that there are some loan sharks that use illegitimate means and con victims to pay extremely high charges. Sharks are also known as predatory lenders and use extra-legal activities to make money. While most payday lenders are legitimate and can be trusted, it pays to check whether they are licensed to offer short-term loans in your province or territory. Some providers also charge hidden fees which add to the cost of borrowing. You can be charged up to a cap of CAD $300. Hidden fees are usually assessed on top of interest charges and the actual loan amount. Not only are payday loans very expensive but some providers use aggressive collection and lending practices such as threatening borrowers with garnishment and prosecution (which is actually illegal). Young people are especially vulnerable because they have a more limited experience and many are new to credit. Students usually work part-time jobs or are unemployed and in need of money. A short-term payday loan may look like a good solution in the short term but you may find yourself unable to pay off the balance. There are other vulnerable groups that are often targeted by loan sharks, including the elderly, new immigrants, illegal immigrants, single parents, and the working poor.
If you want to avoid payday lenders and you have bad credit you should start thinking how to get out of debt first and how to improve your credit. One of the easiest options to start building your credit score back up is to apply for a secured credit card. This will give you the option to improve it over time and gradually get out of debt.
Alternative Solutions
There are plenty of alternative solutions to look into, depending on your credit score, payment history, employment and income level, financial situation, loan amount and purpose, and other factors. One option is to apply for a credit card with a low interest rate and a long introductory period to save on interest charges. If you don’t face an emergency of any sort, another option is to apply for a consumer loan with your local credit union or bank. This is actually the first thing to do if you are a regular customer with one or more debit or credit account. And if you need urgent cash, you may ask your employer for a cash advance which is basically a salary advance. While this is not a wise decision in the long run, drawing on your retirement account is yet another option to consider in case of financial emergency. Payday loans, on the other hand, can be used when all other options have been exhausted and you are in a very tight financial situation. If you need money to pay your utility bills or hospital expenses and have poor credit, for example, then it may make sense to take a small payday loan. Just shop around because some providers charge over 300 percent in interest.