If you’re in need of some cash but have a poor credit score, you may be able to get a direct short term loan. Also known as a payday loan, these loans are handy when a traditional lender, like a bank, will not give you a loan because you have a bad credit history. There are loan-matching services available that can connect you with multiple lenders, but if you’re in a hurry to get some money, it might be easier for you to go directly through the lender rather than through a matching service.
⚠️ Warning: be cautious with short-term loans
If you're experiencing financial hardship and would like to speak to someone for free financial counselling, you can call Credit Counselling Canada on 1800 007 007. It's open from 8:00am to 5pm, Monday to Friday. When comparing short-term loans, ensure you take into consideration all fees, charges and interest to understand how much your loan might cost in total.
Alternatives to short-term loans
Consider these alternatives before applying for a payday loan:
Use online Government resources. The Financial Consumer Agency of Canada website demonstrates how small amount loans work – and suggests alternative options that may help you.
Payment plans. Talk to your electricity, gas, phone or water provider to see if you can work out a payment plan or receive an extension on your due date if you’re behind on payments.
Contact your creditors. Speak with creditors about extending the due date of your payment, or working out a new payment plan that works for both of you.
Seek personal loans elsewhere. Consider a small personal loan from a bank or a credit union. You may qualify for a loan with much lower interest rates than those offered by payday loan companies.
Pay with credit card. Consider paying with your credit card to cover your emergency bills or payments. This is not a long term solution, as you’ll need to pay off the balance as soon as possible, but it’s an alternative to a short term loan with high – and immediate – interest rates.
Check the websites of any lenders you’re interested in to confirm they operate in your province or territory of residence.
How does a direct short term loan work?
Taking out a loan with a direct lender allows you to simplify the process by dealing with a single institution only. You’ll apply, receive funds from and repay your loan all to the same lender. Depending on the lender you select, you can either apply for the loan online or in person at a store.
The application should only take a few minutes to complete and most lenders are able to process the application quickly and let you know if you’ve been approved for the loan soon after. Once you sign the contract, you typically have to repay the loan by your next payday.
For those who apply online, you’ll receive your money directly into your bank account. People who apply in store will be able to collect their funds in person shortly after being approved.
Keep in mind that payday loan regulations are not the same in every province, while the Yukon, the Northwest Territories and Nunavut have no territorial legislation at all surrounding payday loans.
Jason's rent is due
Jason just paid the insurance on his SUV and doesn’t get paid until next month. His rent is due this Friday, and he doesn’t have enough cash to cover it now. Jason jumps online to compare direct short term loan lenders.
He needs his loan really quickly, and doesn’t want to wait to be matched with a lender, so he decides to directly apply online with a lender.
After doing some research, he finds a direct lender that he is comfortable with and applies online for his loan. Within minutes, he is approved for the loan and receives the funds in his bank account the next day.
What to look for in a direct short term lender
Not all direct short term loan lenders are the same. Pay close attention to these factors when comparing lenders:
How easy is the process? Online direct short term loan lenders are an easy way to apply for a short term loan, but not all online applications are equally user-friendly. Some lenders might ask you to fax certain documents to verify your credentials, and the overall time these lenders take to review applications, approve your loan and give you your funds varies significantly. If you’re applying for a loan in person, you’ll likely be able to speed up the process, however this will again vary between lenders.
Does the lender conduct credit checks? While many short term lenders don’t carry out credit checks, it’s possible that they look into your credit history through one or both of the two credit bureaux in Canada: Equifax and TransUnion.
What fees will you pay? The amount of money you borrow and the place you live in will likely affect how much you pay in terms of fees, however that doesn’t mean all direct short term loan lenders charge the same fees for a specific amount of money borrowed. Check what fees and charges come with the loan before you apply. Although some provinces have strict regulations when it comes to fees, others including territories are less regulated and this can affect how much you have to pay back overall.
Benefits and drawbacks
With you from start to finish. When you work with a direct lender, you deal with a single institution throughout the process – from applying online or in person to receiving your funds and repaying the loan. This can make borrowing a much simpler and more streamlined process.
Information is secure. Loan matching services can pass your personal information on to various third-parties, and there’s no telling how many marketing calls or emails might follow. If you directly apply with a specific lender, your personal information will be secure.
Miss no opportunity. While a number of loan-matching services boast extensive lender networks, they might still manage to miss a few good ones. When you’re on your own, you can take the time to look for a lender that meets your specific financial needs. You don’t have to worry about missing out on a lender that a matching service may not have knowledge of or a relationship with.
Spend more time looking. If you limit your search to direct short term loan lenders and refrain from using a loan-matching service, you may end up spending more of your valuable time searching for the right loan.
Disreputable lenders. In the online lending space, there’s always a chance of finding an untrustworthy or predatory lender. Make sure you check the reputation of the lender before you apply by reading customer reviews and looking at more information about the company.
Costs and terms. One drawback of any short term loan is the cost. You’re likely to pay a high annual percentage interest rate (APR) that can range from about 17% to 1,000% or higher, when taking out a short term loan. You also won’t have much time to repay your loan since most short term loans are due on your next payday.
Is there anything to avoid?
Avoid taking out more than you can afford. Although you’re probably looking for direct short term loan lenders because you have an immediate financial need, keep in mind that you’ll have to be able to repay the loan, typically by your next payday. If you’re not sure about your ability to repay the loan on time, you may want to avoid taking the loan in the first place and consider alternative options.
Avoid late payments. When you make late payments, lenders will charge late fees. If there is no money in your bank account on the due date, you could end up paying insufficient funds fees. Banks and credit unions charge these fees to cover the costs of a bounced cheque when there aren’t enough funds in your account to cover the repayment.
Avoid refinancing. Refinancing the loan adds additional costs in the form of charges and fees. You’ll have to repay the original loan amount, the fees accrued from the first loan period and the fees from the second period as well.
Avoid settling. Given that there are dozens of direct short term loan lenders across Canada, it’s best that you compare a few different lenders before making a decision and settling on a specific loan and lender. See what options you have available and find the right lender for your needs.
Eligibility and how to apply
Applications can easily be completed and submitted online. In order to secure a loan, you will typically need to meet the following requirements:
Be a Canadian citizen or permanent resident
Meet the age requirements (usually 18 years of age, or the age of majority in your province or territory)
Have proof of a steady income
If all of the requirements are met, there are just a few steps to apply:
Provide your name, date of birth, address and email address
Provide the necessary ID, like a copy of your passport or driver’s licence, if applying online
Give details about your employment status and income
Are payday loans available in my province or territory?
Ensure that any lender you choose abides by the laws of the place you live. At the time of writing in June 2018, the Yukon, Nunavut and the Northwest Territories do not have legislation regulating payday loans.
Frequently asked questions
A personal loan is unsecured, or one without collateral, meaning lenders rely on your credit score and ability to pay the loan back, instead of on your property, like your home or car.
Getting money directly from a lender means you can use the loan for whatever you want, as long as it’s for legitimate purposes. If you’re late on bills, rent or need to pay unexpected expenses, a short term loan can help you out.
The province or territory that you live in and your monthly income will likely determine how much you can borrow. If you don’t have a monthly income, proof of your ability to pay the loan back may play a role as well. The maximum loan amount can also vary between different direct short term loan lenders.
Online direct short term loan lenders typically transfer money by the next business day. If you apply in person, you may be able to receive cash the same day.
Yes. When you don’t make a payment, your lender can initiate collection, which in turn would have a negative effect on your credit score.
Elizabeth Barry is Finder's global fintech editor. She has written about finance for over five years and has been featured in a range of publications and media including Seven News, the ABC, Mamamia, Dynamic Business and Financy. Elizabeth has a Bachelor of Communications and a Master of Creative Writing from the University of Technology Sydney. In 2017, she received the Highly Commended award for Best New Journalist at The Lizzies. Elizabeth has found writing about innovations in financial services to be her passion (which has surprised no one more than herself).
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