The hidden consequences of no credit check payday loans

Think a "no credit check" payday loan sounds like an easy way to get money? Here's how they can cause more problems than they solve.

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Unexpected financial emergencies can arise when we least expect them and if you don’t have enough cash on hand, you may be tempted to dip your toe into the payday loan market.

While the payday loan space has minimal requirements in order to be eligible for a loan, this type of loan is not beneficial for you as a borrower. Lenders tend to take advantage of people who need cash urgently and charge high interest rates and fees.

If you have bad credit and need a loan, you may be tempted to apply for a no credit check payday loan. This could be a costly mistake. Learn more in our guide below.

Is a “no credit check” payday loan really what it implies?

While no credit check payday loans do not conduct traditional credit checks, don’t assume that doesn’t mean there is no approval process. The lender may check for your employment history, previous debts and your income to determine your eligibility. Remember, lenders are less interested in your credit score and more interested in your ability to repay the loan.

Since no credit check payday loans function like other payday loans, borrowers tend to think they’re safe. Payday loans are small, short term unsecured loans that are expected to be paid back (plus interest and fees) within an appointed time period, usually 7 to 31 days.

Do you have bad credit but still need a loan?

The payday lender traps

In return for these quick and easy no credit check loans, payday lenders set up a number of traps that can result in borrowers getting into more financial trouble than when they started.

  • Excruciatingly high interest rates. A lender’s fees may appear reasonable at first. For example, a $25 fee on a $100 loan doesn’t seem high, but this is actually a 470.96% annual percentage interest rate (APR). These astronomical rates keep borrowers in debt with their payday lenders.
  • Repeat short term lending. When you can’t pay back the loan you agreed upon, your payday lender will offer to let you take out another loan for additional fees. This can be the beginning of a vicious cycle of debt.
  • Loan default. This occurs when the borrower can’t pay back the loan or take out an additional one. Borrowers are then subject to having funds withdrawn from their bank accounts, having their governmental funds withheld, the repossession of their purchases and harassment by debt collectors.
  • Penalty fees. Payday lenders often set up automatic repayments directly from the borrowers bank account. If an attempt by an online payday lender to withdraw payment results in an overdraft, meaning you don’t have enough money in your account to pay the cost, borrowers will face another fee from the bank this time.
  • Bank account closure. If a bank account maintains a negative balance for an extended amount of time, the bank may close the account. People are then forced to look to high-fee debit cards to pay bills since regular banks will no longer do business with them.
Are payday loans available in my province or territory?

Payday loans are available in all provinces and territories across Canada. You should be aware that payday loans are regulated by individual provinces, which means costs and fees can vary. Ensure that any lender you choose abides by the laws of the place you live.

At the time of writing in January 2019, the Yukon, Nunavut and the Northwest Territories do not have legislation regulating payday loans at the territorial level. Payday loans are regulated in these territories at the federal level only.

Find out how much lenders can charge across Canada

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