Costs and Other Things You Should Know

Sameday Loans HubBelow we have listed several items which beg to be asked and we urge you to take the time to look them over and understand what it all means.  We believe if full disclosure and urge you to be sure that all pertinent information is provided to you prior to entering into any agreement.

What is a payday loan?

A payday loan is a short-term loan that you promise to pay back from your next pay cheque. A payday loan is sometimes also called a payday advance.

Normally, you have to pay back a payday loan on or before your next payday (usually in two weeks or less). The amount you can borrow is usually limited to 50 percent of the net amount of your pay cheque. The net amount of your pay cheque is your total pay, after any deductions such as income taxes. For example, if your pay cheque is £1,000 net every two weeks, your payday loan could be for a maximum of £500 (£1,000 x 50%).

A payday loan is a very expensive way to borrow money. Payday loans are offered by privately owned payday loan companies and by most cheque-cashing outlets. The federal government does not regulate these companies.

How does a payday loan work?

Before giving you a payday loan, lenders will ask for proof that you have a regular income, a permanent address and an active bank account. Some payday lenders also require that you be over the age of 18.

To make sure you pay back the loan, all payday lenders will ask you to provide a postdated cheque or to authorize a direct withdrawal from your bank account for the amount of the loan, plus all the different fees and interest charges that will Internet lenders

Payday lenders also operate on the internet. Because Internet lenders are not able to actually see your identification and income documents, they will often ask for more personal information than is normally needed to process a loan, such as your social insurance number, your driver’s licence number, your mother’s maiden name and what the loan will be used for.

Before giving you a payday loan, lenders will ask for proof that you have a regular income, a permanent address and an active bank account. Some payday lenders also require that you be over the age of 18.

To make sure you pay back the loan, all payday lenders will ask you to provide a postdated cheque or to authorize a direct withdrawal from your bank account for the amount of the loan, plus all the different fees and interest charges that will be added to the original amount of the loan. The combination of multiple fees and interest charges are what make payday loans so expensive (see page 6 for an explanation of the various fees associated with these types of loans).

The lender should also ask you to sign a loan agreement. If the lender does not offer to give you a copy of the loan agreement, ask for one. Read this document carefully before signing it, and keep a copy for your records.

By signing the loan agreement, you are confirming that you have read, understood and agreed to all of the terms and conditions of the loan. These terms and conditions must include:

  • the amount of the loan and the date you must pay it back, described as the length of the loan, which is expressed in a number of days;
  • the total cost of borrowing, including:
    • any upfront or first-time fees and charges added to the amount of the loan;
    • various service fees and charges;
    • any fees and interest charges added to the amount of the loan when the loan is paid back on time;
    • the consequences and any fees charged when the loan is not paid back on time;
    • the annual percentage rate of the loan; and
    • the cost per £100 borrowed.

Before you decide to get a payday loan, make sure you know and understand what happens if you cannot pay the loan back on time, and what the costs are if you make a late payment.

How and when do I pay back the loan?

A payday loan agreement usually says that you must pay the total amount you owe for the loan on or before the date stated in your loan agreement. This includes the amount you borrowed, plus interest and any additional fees and charges.

Some lenders will cash your postdated cheque or process your direct withdrawal on the day the loan is due. However, some lenders may require that you pay the loan in cash, on or before the due date.

If you have not paid the loan in cash by the due date, some lenders may cash your cheque or process the direct withdrawal you signed on the day after your loan’s due date, and charge you another fee.

Ask the lender what the most inexpensive way is for you to repay your loan.

How does a payday loan affect my credit report?

Credit-reporting agencies collect information on whether or not you make your payments on time. This information, also called your “credit history,” is part of your credit report and is used to calculate your credit score.

Making payments on time can help improve your credit score by demonstrating that you are able to manage your debt. Even if you have poor credit, you can rebuild it by using a credit card or other type of credit and paying back the money you owe on time.

This is not the case with payday loans. Since payday lenders are not currently members of the main credit-reporting agencies, getting a payday loan and paying it off on time will not improve your credit score. However, if you do not pay your loan back on time and it is sent to a collection agency, this will likely be reported to a credit-reporting agency and could have a negative impact on your credit report.

Tip: You should get – and carefully review – a copy of your credit report from the major credit-reporting agencies, Experian and Equifax,  at least once a year to check for errors and to help prevent identity fraud. If you make your request in writing, the credit-reporting agencies will provide you, by mail, with a free copy of your report.

How much will a payday loan cost?

The Financial Conduct Authority (FCA) said interest and fees will be capped at 0.8% a day, lowering the cost for most borrowers, while the total cost of a loan will be limited to 100% of the original sum. Default fees will be capped at £15 in an effort to protect people struggling to repay their debts.

A payday loan is much more expensive than most other types of loans offered by financial institutions such as banks or credit unions. Before you apply for a payday loan, find out about all the fees and charges you will have to pay – including the fees you will be charged if you cannot repay the loan on time. The fees may not be easy to see right away, so read the agreement carefully before signing it.

If you do not receive an explanation of all of the fees, charges and interest that will apply to the loan, or if you are not satisfied with the explanation you receive, do not sign the loan agreement.

The following is a list of some of the most common types of fees and charges associated with payday loans.

Interest

Interest is charged from the day you take the loan out until the day the loan, including all the fees, is paid back in full.

There are cases where payday lenders have taken customers to court for not paying back a payday loan, and the courts have determined that most of the fees and charges connected with payday loans are actually interest costs. This means that, in many cases, when the fees, charges and interest on payday loans are added together, they amount to a lot more than the 60 percent interest allowed.

Loan repayment fee/First-party cheque-cashing fee

This is a fee that applies when you don’t pay the loan in cash on or before the due date. Some lenders may charge you for depositing your postdated personal cheque or processing your direct withdrawal.

Locate fee

This is a fee that applies if mail sent to the address you give the payday lender is returned or if the phone number you give is disconnected when the payday lender tries to contact you.

Return fee/Non-sufficient funds (NSF) fee

If you don’t have enough money in your bank account to cover the cheque you gave the lender, or the direct withdrawal you authorized to repay the loan on its due date, you may have to pay the lender a return fee or NSF fee. This fee can range from £25 to £75.

Your bank may also charge you an additional NSF fee if you don’t have enough money in your account to cover the cheque or direct withdrawal.

Roll-over fee/Renewal fee/Finance charge/Additional charge/Extension fee

This fee is applied when you don’t pay the loan in cash on or before the due date and the original loan is rolled over or extended for another period of time. If you roll your loan over, you will have to pay this extra fee.

Wage assignments or liens on personal property

Some lenders may try to get you to sign an agreement that says that you agree to have your employer sign over all of your wages to the payday lender if you are unable to repay what you owe. In many provinces, this is illegal.

Some lenders may also try to get you to agree to use your personal property, such as your car, as security for a small loan in case you are unable to pay back what you owe them.

Think carefully about this before signing any agreement. The value of the property you are signing over to the lender may be greater than the amount of the loan you are receiving.

Also, once your property has been given to a lender, it may be very difficult to get it back, or the lender may already have sold it.

The cost of Payday Loans

Some payday lenders also offer services or products to accompany payday loans, such as the following.

Insurance coverage

Some lenders may offer you death or disability insurance on your loan. This type of protection is usually expensive. Before you take this protection, make sure you need it and that you know exactly how much it costs, what the insurance covers and how to make a claim.

Make sure your lender has the right to sell you insurance. Ask the lender to show you proof that he/she is a licensed insurance agent

Electronic loan cards

Some payday lenders offer electronic cards that can be loaded with your personal information, which allow you access to different branches of the same payday lender. The card can also be loaded with the amount of your payday loan and used like a debit card. You should know that these cards come with additional fees including issuing fees, reloading fees and fees for each electronic transaction you make with the card. These cards are also non-replaceable. They are like carrying cash. If you lose the card, you lose the money that is left on it, and the payday lender will not reimburse you.

Lowest cost of borrowing

Borrowing from a line of credit is the cheapest option, followed by using overdraft protection on a bank account and taking a cash advance on a credit card.

Payday loans are by far the most expensive option.

Overdraft protection

Overdraft protection allows you to withdraw more money than you have in your bank account. The amount you owe for an overdraft is the difference between the money you have in your account and the amount you withdraw from your account.

For example, if you have £100 in your chequing account and you withdraw £400 at an automated banking machine (ABM), the amount of your overdraft will be £300.

The bank charges you interest on the amount you are overdrawn until you make a deposit that equals the overdraft, plus any interest and fees you have to pay. An overdraft is much cheaper than a payday loan.

Not all financial institutions offer overdraft protection.

Contact your bank or credit union to see if it offers overdraft protection on its accounts and, if so, find out how much the overdraft costs and how it works.

Cash advances

Cash advances on your credit card are cash withdrawals, usually made with your credit card at an ABM or a bank. They can be as high as your credit limit. There is no interest-free period.

Interest is charged from the day you withdraw money from your credit card account until the day you pay back the cash advance in full. This is also a much cheaper option than a payday loan.

Lines of credit

This type of loan, offered by financial institutions, allows you to withdraw money, as needed, up to a maximum credit limit.

You are charged interest from the day you withdraw money from your line of credit until you pay the loan back in full.

A line of credit offers several payment options that you can choose from. The interest rate on a line of credit is usually lower than the interest rate on a credit card or overdraft.

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