We wanted to be sure our amazing clients were really in the know, so we made a part 1 to our short term loans vs. pawn shops.
How Traditional Payday Loans Work?
Payday loans in Canada allow you to borrow up to $1,500 and pay it back out of your next paycheck. Typically, financial institutions require an application and verification process. They will validate your current income and employment situation to determine how much they are willing to loan you. A credit check may be involved as well.
Once they approve your loan application, you are given a check or electronic transfer of cash. You can spend it as you see fit. The loan must be paid back within a set time frame – usually 14 days, though some lenders offer loans with multiple installments. You pay back the loan, with interest, by the due date; otherwise, you are in default, and the loan is referred to a collection agency.
Payday loans offer a great opportunity to get fast cash without risking your car or home as collateral. The important thing to remember, though, is that it's not free money – it's a loan – and you have to pay it back.
iCASH put together a list of the reasons why people use pawn loans and payday loans in Canada.
Common Reasons Why People Use Payday Loans and Pawn Loans
Many people live paycheck-to-paycheck and have minimal savings or financial flexibility. When something goes wrong, a family member gets sick, an item breaks down, etc., they need to borrow money to take care of those expenses. These kinds of expenses can be considered urgent and not optional – not something that can wait until their next payday or until they can squirrel enough money away to pay for it.
There are numerous uses for these kinds of short term loans in Canada, and everyone's needs are different. Some of the most commonly reported reasons for people taking advantage of payday loans or funds from pawning or selling of items in Canada are listed below.
- Emergency family expenses
- Dental/health expenses
- Auto repair expenses
- Home repair expenses
- Appliance repair/replacement
- Veterinary bills
- Unexpected bills, expenses, etc.
- Pay bills that can't be missed
- Keep utility services running
- Feed yourself and your family
- Make rent/mortgage payments
- Ensure sick kids, family members, pets, etc. get the care they need
Some life expenses are significant, and some are once-in-a-lifetime rare.
It's hard to plan for these, and they can often strain your regular cash management and income. A payday loan, pawning items, or selling items may help finance important events, trips, and expenses in these cases.
- Engagement, wedding, and honeymoon costs
- Vacation or travel costs
- Holiday or birthday gifts
- School or university expenses
- School activity or program expenses
- Educational enrichment or remedial programs
- Camps and sports expenses
Many other personal reasons why people may want to take advantage of a payday loans online, pawning items, or selling items to help generate quick cash. The beauty of these services is that it's entirely up to you, as an individual, to decide if it's right for you. Down to how much you want to sell or apply to borrow, and so on.
Disadvantages of Pawn Loans
• Limited Time and Repayment Options
Pawning an item provides limited choices in terms of loan time and repayment options. Most pawnbrokers have a set period for repayment – effectively the life of the loan.
You have to repay all of the loaned money, plus interest, by that date, or you forfeit the pawned item(s). Most don't offer installment repayments or flexible choices of the length of the pawn. In many cases, they can't be based on regulations and laws. This can make it hard to match the time frame and repayment of a pawn with your overall financials and makes it much less customizable to fit your individual needs. It's kind of a one-size-fits-all approach, which has drawbacks for many customers.
• You Risk Losing Your Items
The biggest shortcoming of using pawning to generate fast cash is that you can lose your items. As a secured, collateral based loan, if you don't repay the loan and interest, you forfeit your collateral. Since you're only getting a small amount of the value when you pawn something, you can end up losing a ton of money.
Imagine you pawn a piece of jewelry worth $1,000 and get $200 from your pawn. You fail to come up with the $200 plus $60 in interest and fees (total $260), you need to pay off the pawn and get your item back. You spent $1,000 on the item originally and got $200 for it – a net loss of $800. So now you're out even more money and future behind financially.
A payday loan from a pawn shop may be better than pawning an item, especially if it is something sentimental.
• In-Person and Lengthy Application Process
A payday loan from a storefront operation can often be a hassle to obtain. You have to go, in-person, to the storefront and fill out paperwork. The application and approval process can be lengthy. In many cases, you may have to leave, allow your application to be processed, and return in-person on another day to get the final verdict and your check.
This can involve travel time, be a real impediment, and cost you a lot in lost wages and lost time with family. Not to mention Canadian winter weather and the rural nature of many areas can mean this is a 1–2-hour proposition for many Canadian citizens.
The application can also involve having to photocopy, fax, notarize, or physical mail copies of documents, provide you hard-to-read carbon copies of the paper, and much more that makes traditional payday lenders seem like they're stuck in the 80s, at best.
The Best Alternative to Pawn Shop Loans: Online Lenders
In recent years, next-generation direct payday lenders, who operate entirely online, have become more popular. They offer all of the advantages of traditional lenders (as opposed to pawn shops) and overcome all of the drawbacks and problems traditional loan lenders presented to consumers. In short, they're the superior choice for customers who need quick cash in the form of a payday loan.
The application process, approval, and funding occur entirely online, so customers never waste time traveling or dealing with physical paperwork. Applying for an online loan can be done entirely from the comfort of your home or office and takes just minutes. Funding is fast, too, and you can get funds electronically transferred the same day as you are approved in many cases.
We are a fully licensed and certified throughout seven provinces and territories in Canada and continues to expand, with more coming soon.
• Interest Rates
Online payday lenders have relatively low overhead. This means they don't need to charge as much interest to turn a profit. This translates to lower interest rates for consumers.
• No Collateral Risk
Unlike pawning items, payday loans of all types are unsecured.
Traditional and next generation payday loans don't require you to risk losing any of your possessions. There's no risk of a lien on your car or house, as you'll find with a title loan. Rather, the eligibility assessment looks at your income, job history, and credit score to determine how much you can safely borrow.
Loans from online lenders allow for fast, AI-algorithm-based decision making that analyzes far more data than a human could in the blink of an eye. This means that even those with bad credit can often qualify for loans with instant approval.
• Flexible Loan Options
Small loans online from private lenders offer highly customizable and flexible loan options compared to pawn shops or their traditional payday lender counterparts. Depending on the province, customers can select from a range of loan amounts, loan terms, and flexible repayment options*.
In the case of iCASH, some customers can choose to pay back the loan in a single lump-sum, or 2 or 3 payments. They don't charge more for either of the installment payment options either.
You can tailor your loan options to fit your exact needs. It's the total opposite of the one-size-fits-all nature of pawning and traditional payday loans.
• Customer Support
Because the entire application and funding process takes place online, they have to maintain a large, talented support staff. They're well-versed in how the process works and are eager to help customers with their application or any other issues. This makes online loans very customer centric, not with a "next customer, please!" attitude you'll find with payday lenders or pawn shops.
In conclusion, pawn shops, traditional lenders, and next-generation online lenders all have their place. If your main means of obtaining quick cash is by selling your items or leveraging your item's value via a pawn, that's certainly possible.
There are many risks and costs associated with this form of financing, though many consumers can end up feeling burned. Short term lenders are a slightly better choice, especially if you have a stable job and regular income. But they still have many drawbacks that limit their benefit for most consumers.
New payday loan companies that operate online offer some of the best service, flexibility, and competitive costs for consumers.
If you need a quick cash loan, an online lender like iCASH is your best choice!