A financial emergency can happen at any point in time, without letting you realize its arrival. It comes when you are least prepared for it and somehow have to face it. Such uncertain circumstances lead to people falling into debt situations. And, did you know the fact that 40% of the Canadians face this similar situation of facing unexpected debt and find a way to deal with it.
Those who know anything about emergency payday loans head towards the same to arrange same-day cash approval for a short-term period. And, those who know least about such instant loans have come to the right place to learn from about this.
So, here we will be touching on a few crucial points related to emergency payday loans based on the following few points:
- What exactly is the loan all about?
- How much amount to expect from it?
- Real-time benefits
- What’s wrong with payday loans?
- How much does it cost?
- Why it has a high-interest rate?
- Who can apply for it?
What is an emergency payday loan?
There is a bunch of information available on emergency payday loans with instant approval where at most you find a loan offered against the future paycheque. Well, it is not the case like this. Instead, these are short-term loans offered with a high-interest rate and fees with terms designed to offer for a two-weeks of a cycle. And, that too regulated by different provinces terms.
In actual terms, you can avail 50% of the expected of your take-home salary and repay the same on your next paycheque. Additionally, the annual interest rate charged on this short-term loan offer can be up to 400% in contrast with a loan from the traditional banks that nominally charge 5% per year.
How much amount can be borrowed?
Just like mentioned above, the loan terms are regulated according to different provinces in Canada. So, there is no fixed amount to entail. In general, $100 to $1500 is offered during emergency financial circumstances with varied interest charges along with fees decided by lenders.
Benefits of availing of emergency payday loans
Although payday loans availed during emergency circumstances have several downsides, still they possess a few benefits that you should be aware of.
- A simple and secure online application process that ensures borrowers need not go through the hassle of cumbersome paperwork and multiple rounds of the bank.
- A better and instant financial alternative as compared to banks and other conventional financial institutions. Payday loans online are free from stringent measures and strict terms and conditions followed in offline loans.
- You can get the loan approval and sum of cash in a few hours when lenders provide you with an immediate response.
What’s wrong with it?
Although payday loans for emergency circumstances appear to be a real financial blessing for individuals to arrange quick cash. It is easy to access online without even going to the bank and waits for days to get approval.
As per the critics, the only downside with such loan offers is the high-interest rate as compared to other digital and conventional loan offers. Also, the inflexible terms, one-time full repayment structure, such a short-term period, and predatory features are not so good things about payday loans.
Calculate the cost of emergency payday loans
Now, comes the major element of emergency short-term loans and i.e. interest charges. Lenders disclose the rates as annualized percentage rates calculated on the total amount you borrow. It is better known as APR which is charged differently by the different provincial governments. For your reference, here are a few APR rates mentioned below.
| Name of the Province in Canada | Maximum Charge Per $100 Loan | APR Rate for Payday Loans (Based on 2-week) |
| Alberta | $15 | 391% |
| British Columbia | $15 | 391% |
| Manitoba | $17 | 443% |
| New Brunswick | $15 | 391% |
| Newfoundland and Labrador | $21 | 548% |
| Nova Scotia | $19 | 495% |
| Ontario | $15 | 391% |
| Prince Edward Island | $15 | 391% |
Why do payday loans charge such a high-interest rate?
You know above about the rate of interest charged annually according to different provinces in Canada. Next is to know why it has so much high percentage rate of charges.
As per the Criminal Code amendments of Canada, payday loans must be small not exceeding the amount of $1500 or less. And, each province needs to regulate payday loans to protect the recipients and clearly specify the total cost of the loan.
According to Criminal Code amendments, it allows the province to set the maximum borrowing limit for the loan. Borrowers can face significantly different interest charges based on their living place. As per the mentioned province above, the APR varies from 391% per year to 548% per year fully regulated by respective provinces as per their financial laws.
Such a high-interest rate is charged under emergency payday loans to protect the interest of lenders who needs to operate the offer legally.
Who can get real benefits from payday loans during emergencies?
The target users of payday loans appear to be consumers having limited assets with increasing liabilities, income-constrained individuals, and employed professionals.
According to the research carried out by the Financial Consumer Agency of Canada in 2016, rented household people make the best use out of payday loans than home-owing individuals. Also, single parents, especially the mother is likely to rely more on such short-term loan to face uncertain monetary circumstances.
Also, according to the 2020 HoyesMichalos “Joe Debtor” bankruptcy study, two out of 5 individuals (38%) had payday loans, and the average amount of payday loan amount rose by 13% as compared to the 2019 study. It has also been noted that the number of people using 2nd Chance Payday Loans is not just to pay off the debts and clear off the pending expenditures. More importantly, it is about repaying the previous loan and staying away from the cycle of increasing interest rates and late payment charges debt.
Frequently Asked Questions
What is a payday loan best used for?
It depends on the discretionary decision of the borrower to spend the loan amount the way he/she likes. It could be on the pending monthly expenditures, unpaid dues, bills, previous loan payments, or it can be anything.
How does it affect the credit score?
There is only one-way emergency payday loans affect your credit score and i.e. not repaying the loan well on time and keeping on stretching it. Due to this, your credit score keeps getting degraded, the lender forces you to repay the loan. The credit agency will send you notice, and there might be other worst circumstances affecting the credit report.
How much amount can be expected from a payday loan?
Although minimum to maximum amount availed under payday loan is still the same. You can get depending on your repaying capacity which is to be decided after looking at your monthly income and liabilities.