Payday Loans: A Cushion Against Financial Distress in the New Normal
The pandemic has driven a lot of unexpected changes in our jobs and finances. The sharp increase in unemployment has left many people with no choice. Banks have become stricter amidst the almost zero interest rates. As such, payday loans have been a go-to option for many Canadians in the last year.
Despite this, the criticisms on payday lending remain evident. The payday lending industry appears predatory and exploitative for many. But for others, it is their lifesaver as banks and other financial institutions shut them off. With that, we will take a closer look at its hidden benefits in the new normal.
The Hidden Benefits of Payday Loans
Amidst the negative perceptions, payday lending remains sturdy, especially with the ongoing pandemic. What many Canadians still do not realize is that payday loans are a lifebuoy in disguise. Given the upsurge in unemployment and strict banking, it helped those who fell short of cash. With payday loans, many were able to meet their urgent needs.
Now, the labour market condition is getting better. But, it is yet to go back to its pre-pandemic level. Despite the robust recovery in Canada, many are still jobless. With that, here are the hidden benefits that payday loans provide.
Emergency Funds for the Jobless and Lower-Income Households
The labour market was the first one to experience the scourge of the pandemic. This was more visible in the hard-hit sectors like tourism and sports. In Ontario and Manitoba, the unemployment rate rose by 81% and 67%, respectively. On average, Canada’s unemployment rate increased by 53%.
Now, the labour market condition gets better as the economy reopens further. The unemployment rate dropped by 24%. Yet, it has not gone back to the pre-pandemic level. Except in PEI and Saskatchewan, it remains higher than in 2019.
As such, it is no wonder that payday loans have become a staple for many in the last year. Thanks to its lenient income requirements. Whether you have a job or not, payday loans provide instant cash for you. Of course, there is a limit to the amount you can borrow if you are not employed.
Taken from Newfoundland and Labrador Statistics
Reliable
In early 2021, installment loans labelled as personal loans have overtaken payday loans. This must be because a payday loan is a type of installment loan but it has a limit of $1,500. In contrast, you can get a lump sum of cash upfront with personal loans. Also, you can pay these loans by installment, unlike payday loans which you have to pay in full.
Personal installment loans, in reality, appear more predatory than payday loans. In a recent article, a Canadian availed of these loans to buy a couch. But for the life of her, it bore an almost 30% annual interest rate. It is no wonder she ended up with a $5,850 payable loan.
Payday loans are regulated compared to personal installment loans. In Canada, the average interest rate is 17%. But there are payday lenders that charge lower interest rates of 15% only. Moreso, it has a short-term financial impact since you have to pay it on your next payday. As long as you pay it on time, you will avoid paying penalties and other fees.
Fair and Convenient
The thing is, you can borrow whether you are employed or not. The money you can borrow varies with your income level. It can cover your urgent expenses, especially in provinces with a higher cost of living. For example, in Ontario, the average cost of living is $4,589, $36 higher than the average income.
Payday loans provide convenience as everyone can apply online. You will no longer have to go through the hassle of falling in line for the application. Moreso, the processing and approval only take a day. Despite the leniency, it continues to abide by the law, protecting borrowers’ welfare.
The Dos and Don’ts of Payday Loans
Dos
Pay on Time
Be sure to have enough in your bank account on the due date. That way, you can avoid other fees for a bank overdraft, late payments, and higher interests.
Live Within Your Means
Proper budgeting plays a fundamental role in your financial capacity. As such, you must prepare a budget before applying for payday loans. You will know how much money you need for your payday needs. Also, you will avoid overspending.
Check the Loan Payment Terms
Payday lenders must provide all the information about your loans. These include interest rates, repayment schedules, and extra fees, if there are any.
Don’ts
Don’t Borrow too Much
Take what you need because that is the essence of payday loans. Let us face the fact that lower-income households have more propensity to spend than save. For instance, you borrow $500 even if you only need $300. With an average interest rate of 17%, you will have to pay $585 instead of $351 only.
Don’t Falsify Information
Payday lenders, in general, are more lenient than banks. But, they have their way of confirming your identity. It may lead to the disapproval of your application or restriction on other lenders.
Don’t File Many Loan Applications
Do not file several loan applications in a short time frame. This will hurt your chances of getting approved and affect your credit score.
Bottomline
Despite the skepticism and apprehension, the payday lending industry remains sturdy. Payday loans continue to play a fundamental role in the finances of many households. It has higher fees, but leniency and convenience are what many Canadians value more. If you follow these tips, you can appreciate payday loans more.