A payday loan can be defined as an unsecured loan that is for the short term. This will mean higher interest rates to pay for the greater risk the lender is taking, but help out the borrower when they can more easily obtain the finance that they need.
So, we shall explore just what the uses of these types of loans are and what you should know to be fully prepared, should you choose to get a payday loan in Canada.
Unsecured
The benefit of an unsecured loan is that it does not rely on someone having assets to their name. It does not worry about their financial position to the extent other types of loans do.
The borrowing choice is limited with no major asset to use as security against a loan. Most lenders will want security to provide them with greater confidence that they can always recoup their money. This is where a payday loan benefits many individuals or struggling businesses that do not have the luxury of assets on their balance sheets.
Temporary Solution
The idea of taking out a payday loan is to provide a short-term solution to a financial problem, not that you cannot see finances improving in the future. You may, for instance, have a seasonal job that means that you earn more money at a certain time of the year and then need a financial boost during others. It could be that you want to buy a special item now rather than wait to own it. Both situations can be taken care of by a payday loan.
Immediate
The beauty of a loan is that you can have the cash to spend now and then pay it back over time. This time will, of course, not be very long when a payday loan is short-term. However, it can be all that is required to sort out a temporary financial mess and enjoy living for a period that could have been with great hardship, had the payday loan not have come to the rescue.
Notes of Caution
As with everything, there are pros and cons to payday loans. While they provide a short-term solution to financial struggles, you do pay more for the privilege. This is because the interest rates will be higher with this type of loan. This is in exchange for the loan being unsecured and having a greater risk attached to it for the lender. So, factor their higher interest rates in so as not to end up in a debt that becomes difficult to escape in the long term. Know what your future earning potential is likely to be, too, so that you always have a financial plan to follow.
How Useful is a Payday Loan to Canada’s Residents
The pandemic has meant that many working in service industries have had their jobs, and so their income, affected. Canada’s economy is dominated by these types of industries, which will ordinarily employ three-quarters of Canadians. Thankfully, some kind of solution has been found that protects us in part against Covid-19, but we cannot rule out further strains or different pandemics hitting shores. So, we need to know that there are solutions out there for those who are struggling to pay bills at times when economies are hit hardest by pandemics. Not everyone in Canada will own their own home. Although Canada is a nation of mainly homeowners, 32 percent of its population rent, so there will need to be solutions for others who rent their properties. This is where payday loans are useful for many.
In summary, it is important to have payday loans as a financial option for those renting in Canada, and so are without an asset to use as a financial security against a loan. However, for those that are homeowners, it is important to know that there are options where the interest rates will be lower. The good thing about any loan is that it will provide you with that lump sum of cash just when you need it, which can then be repaid in fixed and regular amounts that can be budgeted for.