Things to consider before taking out a short term loan in Canada.
A big increase in short term borrowing.
Short term loans are commonly referred to as payday loans. In a report from the Financial Consumer Agency, short term loan in Canada applications saw a big increase, from 1 in 50 Canadians in 2009, to 1 in 25 in 2014. Short term loans, however, can come with a sting in the tail.
What you need to know for short term loan in Canada
Before you sign on the dotted line or click the accept button you need to be absolutely certain about the interest rate and the repayment schedule, because this is where things can get confusing. The terms you’re offered may look affordable, but are they?
Typically a payday loan has to be re-payed within 2 weeks if you borrow larger amounts that could extend the repayment period to 2 or 3 months. Pay particular attention to the annual percentage rate (APR) of your loan. If you are borrowing with the intention of paying back within a few months, the APR may appear to be unimportant.
An example of those deceptively low repayment figures will reveal the true cost. You want to borrow $500 and pay back over 90 days, with a monthly repayment of $258.25. That’s an incredibly high 1112.24 APR. With typically high APR’s of between 500 and 1000%, with administration costs on top, that loan doesn’t look so attractive.
Using an on-line APR calculator is one way to find out the real cost of a short term loan in Canada.
In Canada, it is a legal requirement to display the annual percentage rate of any loan. Though take a look at a typical creditor’s website and it may not be that easy to find.
One certainty with a payday loan is the interest rate is going to be high. Looking at payday lenders sites, some will quote you a fee for every $100 that you borrow, (some Provinces have set this amount at between $15 and $18, though not all so it pays to check), though not all lenders charge fees. Short term loan in Canada have been undergoing a legislative shake-up.
Payday lenders, in particular, have not been seen in a favorable light, with accusations of exploiting the low paid and financially unaware. Many Canadian provinces have put caps on the fees the lender can charge and extended the length of repayment schedules. This is good news for the borrower but has caused a minor crisis in the short term loan in Canada industry. Some of the smaller companies saying the new lower rates are making it very difficult to make any money for themselves.