What Are Payday Loans and How Do They Work?


We’re starting to see the aftermath of the COVID-19 storm that wrecked economic damage to so many of us.

For Canadians, that means higher interest rates, high inflation, money worries, and stress as we look to meet our mortgage payments and everyday bills and expenses. 

Though money worries are a common source of stress, there are solutions. One solution that might be a good answer for you right now is a payday loan.

But what are payday loans, and how do they work? We have all the answers here. 

What is a Payday Loan?

If you’ve found yourself short of money to cover an urgent bill, you’ll know how stressful this situation can be.

Payday loans are small sums of money you borrow for a short time – weeks or months rather than years. This loan is a quick injection of cash that will help you cover your bills until your next payday, hence the name. 

In Canada, you can borrow as little as $100 and as much as $1500 using a payday loan. The average sum is around $500. 

Most people choose to pay the loan back on their next payday, but you can set a fixed amount of weeks to repay your loan instead. The maximum time limit for repayment in some Canadian provinces is 62 days. 

At Kingcash, we offer flexible repayment arrangements to suit your circumstances. You can repay the loan in 3, 6, or 12 separate installments. 

Unlike formal loan arrangements with banks, payday loans don’t require credit checks. This makes them fast and flexible ways to access cash at short notice and helpful if you lack a flawless credit history. 

The short-term style of payday loans means that fees and interest rates differ from what you might expect with a more traditional loan. Providers tend to offer a flat fee for the loan or an interest rate higher than a typical bank loan. 

What Are the Benefits?

Is a payday loan right for you? Let’s review some of the benefits. 

It’s flexible: Long-term loans take considerable thought. You need to plan how you will spend the money, how you’ll repay it, and how it may impact the rest of your finances. In contrast, payday loans offer flexibility.

It’s quick: Short-term loans can help you out of an immediate financial problem. The time from loan application to approval takes hours rather than weeks or days, meaning you can access that money faster.

It’s a short commitment: You won’t need to consider whether a loan will impact you in one, two, or three years. It’s a short-term commitment you can repay and forget by your next payday. 

It’s easy: Payday loans don’t require detailed information on your spending or earnings. It’s a straightforward form that you can complete online, so it’s an easy way for anyone to access a loan. 

It’s regulated: The Financial Consumer Agency of Canada regulates all payday lenders. That will give you peace of mind that you will access a trustworthy and respectable financial product that has benefited many Canadians. 

How Do Payday Loans Work?

You must seek regulated financial providers in Canada, such as Kingcash, to access a payday loan. And you need to fit specific criteria to apply:

  • You must be a Canadian resident
  • You must be over the age of 18
  • You must be in a job that pays a minimum of $1200 a month
  • You must demonstrate at least three monthly payments from your job
  • You must hold a bank account in Canada
  • You must not have previously declared bankruptcy

You must complete an online application form if you meet the relevant criteria. You’ll need to submit these answers as part of the form:

  • Name and proof of identity
  • Address and proof of address
  • Proof of income
  • Bank details

Note that the form will not require a credit check, so there will be no marker on your credit report.  

Once you have the information at hand, most forms take a matter of minutes to complete. After that, you must wait for the approval. Fortunately, approvals happen within 15 to 30 minutes with most payday loans.

Your loan payment to your bank account happens immediately once you have that approval. That means it’s ready for you to use without delay. 

During the application process, you’ll have an opportunity to set your repayment terms. Installments typically go from your bank account automatically, so you won’t have to remember to repay the money. 

What Happens If I Don’t Repay the Loan On Time?

Depending on the provider, you could incur additional fees if you fail to repay your loan by the agreed date. You can prevent this by happening by taking the following steps:

  • Choose a provider who will set up direct debit installments, so the money leaves your account automatically
  • Redo your budget for the next two months to take into account the repayment
  • Reduce your spending on any non-essential items to ensure you have the money available to repay the loan
  • Think about holding a yard sale to earn some extra cash to help you cover the repayment
  • Use a money app to monitor your spending or check your bank account daily to monitor your expenses

A payday loan requires the same good financial management as any other financial product. Doing so can help you experience all the benefits of a short-term loan but avoid putting your long-term financial situation at risk. 

You may also want to consider long-term rearrangement of your finances, including revisiting your budget, to avoid needing future loans.

If you need a loan to cover an unexpected cost, like a car repair, consider setting aside small savings account for future financial emergencies. 

What Are Payday Loans?

What are payday loans? In short, they are an innovative and practical solution to help you solve a short-term money problem. So don’t allow money worries to keep you awake at night. There are options available.

Now you understand the process; it’s time to start your application. To do that, head to our easy online application form and claim your cash now. 

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