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Top 11 Ways to Avoid Payday Loans in Canada

Payday loans are short-term loans that levy very high-interest rates and are usually taken up by individuals during the intermission between their paychecks to cater to any financial need. Yes, a payday loan resolves your financial needs, but at the same time, it brings a financial burden on you in terms of higher interest rate payments. It is always better to avoid taking payday loans, instead, save for emergencies. To help you with this, here are the top 10 ways in which you can avoid payday loans in Canada!

Read: 13 Ways on How to Improve Your Finances in Canada

Payday Loans in Canada

The Canadian Payday Loan Association has revealed the statistics for how many people utilize payday loans every year in Canada, and it stands at a whopping 2 Million! You can get a payday loan from $100-$1500, and the interest will be calculated bi-weekly which can go as much as 25% to 652% APR! Sounds unreal, right? It is the reason why many people are trapped to pay it back for years and get pushed into a debt trap.

Many provincial governments in Canada have taken measures to regulate the interest rates and fixed rates of payday lenders. However, these rates are still more than average and people who get a payday loan are stuck with the interest payment for years.

While these payday loan services are very much legit, due to the high demand, it has too many drawbacks that overpower their good side. Not surprisingly, the nature of this loan has acquired a befitting name “Predatory lenders”.

If you still want to get payday loans in Canada, you can get them from GoDay, Payday, My Canada, Loans Canada Online, Money Mart, North ‘n’ Loans, etc.

Read: Your Guide on How to invest in an ETF in Canada?

How do Payday Loans in Canada Work?

If you are in dire need of some cash for an emergency before you receive your next paycheck, you can apply for a payday loan by an online or walk-in method. You can get a loan in cash or advance. The most basic payday loan repayment structure requires you to oblige a period of 14 days. 

To take out a payday loan, you will need to confirm some formalities like providing identification documents, and proof of employment, etc. Such documents may include,

  • Recent utility bill.
  • A government photo ID.
  • Pre-authorized debit form or void cheque.
  • Proof of employment through a checking account or pay stub.

This loan can be passed for people even with a bad or no credit score, as it is an eccentric selling point for all the lenders. It is a quick loan; if you have proof of paid employment, you will receive the amount within a short period of minutes or hours.

After you get the loan, you need to pay this loan back in 14 days usually, the amount that you borrowed will be debited from your account directly by the lender. If your checking account is empty and the withdrawal bounces, you’ll be answerable to NSF or non-sufficient funds and your total debt will be alleviated, lowering your credit score. 

Payday loans are not illegitimate, however are a blot on the finances in the long run. When people take out the payday loan as a last resort because they are in a desperate bid to solve some money problem. However, the sky-high interest of payday loans makes this a volatile choice which can have an adverse effect on the financial situation.

Read: Top 10 Ways To Pay Off Credit Card Debt In Canada 

Top 10 Ways to Avoid Payday Loans in Canada

1. Opt for a Personal loan

Personal loans are small amounts that can be acquired from your bank. Their interest is way more convenient than a payday loan. If you qualify for it, you will save thousands in interest payments. 

While you can get this loan from credit unions, and banks, you can also find lenders who will be willing to extend the loan to you at better rates than a payday loan. You can use the loan connect service to find alternative lenders from which you can get a personal loan.

2. Make a Budget and Save for Emergency 

You should note down your monthly expenses and make a comparison with your income. You will find that there are areas where you are spending excessively and can regulate that. The reason you do not have money for needs might be that you are spending more than you earn.

To overcome this problem, you should create an emergency fund, and put a small amount towards it every month. You can also open an emergency savings account that can save you from taking on the debt bait of payday loans when you require urgent cash. As mentioned by FCAD, 45% of people resort to payday loans, but now you have the alternative.

3. Go for a Line of Credit

Similar to a personal loan, the difference in the line of credit is that you are allowed to only withdraw funds up to a certain limit and pay the interest on the withdrawn amount. To get a line of credit, you can contact your financial institution.

4. Choose Credit Card Cash Advance

If you own a credit card, you can easily make your purchase, fulfill your need, and pay it back with interest once you have the money. The interest on a credit card is very low as compared to a payday loan.

5. Sell Unnecessary Items

You can sell your discarded items or the things that you don’t use and raise some money for your needs. To do this, you can use platforms like Craigslist, eBay, Kijiji, where you can sell used items. You also have the option to sell them yourself via pawn shop, or yard sale.

6. Do Side Gigs

If you are unable to fulfill your basic needs with the current salary you get, then it is time to get another part-time job or a side gig. This option allows you to increase your income, hence, you won’t be paying any interest. 

7. Ask for an Advance Salary

Your employer might be open to the idea of giving you the salary before the payday, hence saving you the hassle of getting a payday loan. You can also repay this amount over time. It is one of the best alternatives for getting payday loans in Canada. 

8. Negotiate with Your Lenders

If you are not able to pay back your payday loan, you should negotiate with your lender to come up with an alternative to paying. For example, they may allow you to pay in EMI without levying any fee or interest charges. Asking might help here and resolve your issues. Just give it a try. 

9. Ask Family and Friends for Help

You can always reach out to the supportive members of your family or friends to extend a loan to you. If you open up about your financial situation, your family or friends may even go as far as to help you find better financing options and make financial decisions.

However, remember that friends and family might not always extend this loan as they also have their financial situations to deal with. 

10. Get a Home Equity Loan

If you have a home, you can take out a Home Equity Line of Credit (HELOC) by putting your home as collateral. This option has a very low rate compared to payday loans in Canada and also enables you to access the funds only in case of emergencies. Though be mindful that with this option, you are giving your homeownership as collateral. 

Read: The Ultimate Guide on How to Buy a House in Canada

11. Go for Credit Counseling

If you already have a lot of debt to pay back, you should reach out to a counselor who can help you manage this situation. Their session might be free or cost or with a minor fee. 

To find out such counselors, you can check out the Canadian Association Of Credit Counselling Services or Credit Counselling Canada. These counselors can help you mend your credit.

Conclusion

Payday loans are evil but they are also a means of help in case all your options are exhausted. However, it is advisable to avoid them. Hence, you should budget your expenses and savings, and create a debt-free life for yourself. Try to develop strict personal finance habits and stick to them every day, every month. That is the best way in which you can avoid payday loans in Canada! 

Read: Top 7 Prepaid Credit Cards in Canada!


Devanshee Dave

Devanshee is a staff writer at YourFirst.ca. She is a finance enthusiast and has completed her Master’s degree in Mass Communication & Journalism. She is currently pursuing CFA (Chartered Financial Analyst) and has worked as a journalist in a local business newspaper, multiple start-ups as well as finance and economy-related online media houses.

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