There may be times when you may need quick cash to finance immediate expenses until funds become available. Generally, you have two options: a payday loan or a cash advance.
Both allow you to get money quickly, but they have significant differences. Here are the things you should know to decide which is best for you.
What is a Payday Loan?
A payday loan is short-term borrowing from a lender based on your current income. In Canada, the payday loan limit is $1,500.
Lenders expect repayment on the borrower’s next payday. In Ontario, Alberta, Manitoba, British Columbia, and New Brunswick, you have 62 days to settle the loan.
Getting a payday loan is easy. Lenders only require you to present the following:
- Proof of income
- Bank account
- Permanent home address
You must also submit a form authorizing the lender to withdraw from your bank account. Alternatively, you can issue a post-dated cheque covering the principal loan amount plus the interest. Since a payday loan is short-term and doesn’t require collateral, lenders charge high-interest rates.
Payday lenders are common in Canada, but you need to be careful. Some lenders are not over scrupulous about their lending practices. To be safe, get an online loan through GoDay, a licensed online payday loan provider.
What is a Cash Advance?
A cash advance is a loan typically offered by a credit card company that involves high interest and fees. You can pay off the loan in one settlement or installments.
Credit card cash advance lets you borrow funds based on your credit card limit. Most credit card providers set a percentage of your credit limit to use for a cash advance.
One advantage of a cash advance is you don’t need to apply for one. You can withdraw cash from an ATM and make monthly payments. Credit card providers typically charge a cash advance fee for the service. It can either be a flat fee between $5 and $10 or a percentage of the withdrawn amount.
Note that the interest rate for cash advances differs from the regular credit card rate. Credit card cash advances interest accrues from the transaction date and not at the end of the grace period.
Which Quick Loan Should You Get?
According to ACORN, or the Association of Community Organizations for Reform Now, 3 percent and 15 percent of Canadians are unbanked and underbanked, respectively. They have little to no relationships with banking institutions. A payday loan or cash advance may be their only access to fast cash.
Unfortunately, they come with high interest. It would be best to explore available options before deciding to get one or the other. For example, you can reach out to government agencies and local charities that offer financial services.
If you get a payday loan or cash advance, make sure you can settle them before the due date. Failing to pay on time can incur additional fees and interests.
You can always ask for payment extensions if you get behind with your payments. Most licensed lenders in Canada are more than willing to grant an extension so you won’t default on your payments.
