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Payday loans are quite easy to obtain but they are short-term loans and must be paid within 10 to 14 days. In many things that are easy to get, it is often a wise move to familiarise oneself first about something before using it. This is also applicable to payday loans because of the many pitfalls that one could get trapped in.

 

Pitfalls in payday loans

The primary pitfall in payday loans is that they are not the solution to your financial problem but only serve as a stop-gap measure. In fact, if you are not careful, the difficulties that you are experiencing with regards to money could actually get worse. Because of the high interest rates and fees that are required for payday loans, the effect is that your expenses will increase. Another pitfall is the damage to your credit score if you fail to repay the loan on payday.

Conflicting jurisdictions over payday loans

It should be noted that payday loan companies in Canada are mostly unregulated. Meanwhile, the territorial government is responsible for approving licenses and the policies affecting the companies' daily operations, while the federal government is responsible for monitoring interest rates. When choosing a loan company, make sure that it is licensed to operate in your province.

Fees and interest rates

It is illegal in Canada to charge usurious rates and this means that the total fees charged by a payday loan company should not be more than an annual rate of 60 percent. Since the interest rates and fees are payable within 14 days, it would be necessary to convert them into the effective annual rate to make sure that the fees are not too high.

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