Can I have more than one payday loan?

Payday loans are short-term, unsecured loans that don't involve a credit check and provide cash quickly to those in a financial emergency. Generally speaking, depending on the lender, payday loan recipients can borrow anywhere from $500 to $1500. The concept behind payday loans is that borrowers can borrow funds to pay their debts and repay the whole amount by their next payday.

Can you have two payday loans at once?

Whether or not you can get a second payday loan depends on the province you live in. Payday loan regulations vary between provinces, with most preventing individuals from applying for a second payday loan without paying back the initial loan amount first.

However, it may be possible for you to get a payday loan from a different lender if the lender doesn't do their due diligence and check whether you already have another payday loan. Ultimately, if you do need to get a payday loan, you may as well be upfront with your lender before getting the second loan to prevent any issues later on.

Can you get multiple payday loans from different payday lenders?

Again, whether or not you can get multiple payday loans will depend on which province you live in and the specific payday loan laws that govern this industry. That said, you'll likely be able to get multiple payday loans if you get them each with a different lender who doesn't check whether or not you have other payday loans currently.

It's important to remember that having multiple payday loans can severely impact your financial health if you are unable to make your loan payments on time. If you need cash quickly, it may be a better idea to look at payday loan alternatives that won't put your financial situation at risk.

What would happen if I did get multiple payday loans?

If, by some chance, you were able to secure a second payday loan or multiple payday loans without paying back your first payday loan, there are a couple of things that could happen:

It can negatively affect your credit score

While a payday lender won't run a credit check during your application process, if you don't pay your loan amount back by your next paycheque, your non-payment will be sent to a credit bureau. When this occurs, your non-payment will be recorded and remain on your credit report, which, over time, will impact your overall credit score.

It can put you into a cycle of debt

Taking out multiple payday loans can also put you in a cycle of debt that is hard to get out of. Because payday loans are a high-cost credit, you'll be paying a significant amount more than you borrow, given their inflated interest rate. And, if you're unable to pay back your multiple loans by your next paycheque, most lenders will continue to tack on fees, making it difficult for you to make your payday loan repayment in the future or pay off debt altogether.

What happens if I can pay back my outstanding payday loans?

Beyond the consequences of taking out a second payday loan or multiple payday loans, there are other potential risks you need to be aware of, including the following:

• Don't have enough funds in your account to make your repayment? You could be charged an additional fee by your payday lender for having insufficient funds in your bank account at the time they go to withdraw what they are owed at the end of the month.

• If you don't have enough money in your savings account, your banking institution could charge you an insufficient funds fee (NSF). To avoid this, think about getting overdraft protection coverage to prevent overdraft fees.

• Until you are able to repay the entire amount owed, your payday lender will probably charge you interest on top of the interest you already owe.

The Pros and cons of payday loans

For those of you who are still not convinced about staying clear of payday loans, let's break down the pros and cons of doing so a little more for you:

The pros of payday loans

Quickly access cash

Look, if you need extra cash quickly, payday loans are a great way to get funds transferred into your bank account within a couple of minutes or 24 hours, depending on which lender you go to.

Easy to apply and be accepted

Because payday loans don't require a credit score check, borrowing money is possible for virtually anyone if they have a valid bank account.

Numerous payday lenders

If you need to borrow money, there are numerous payday loan options out there, making it easy to find a lender that meets your financial needs.

The cons of payday loans

High interest rates

When we say payday loans are a high-cost loan, we really mean it. Imagine you need to borrow $1000 from a payday lender, and you reside in Ontario. You would have to repay $1150 in two weeks, with a cost of $15 for every $100 borrowed. For comparison, a Canadian virtual credit card has an average annual percentage rate (APR) that reaches a maximum of 25.99%, whereas your 15% rate becomes 391.07% with a payday loan.

Now, let's say you can't make your loan repayment in those two weeks. In this situation, you'll be charged an additional $25 non-payment fee, now bringing your total to $1175 owed, with more interest next month.

Short repayment schedule

Unlike other personal loans that give you several months or years to pay back, payday loans typically have a two-week repayment term, giving you little time to come up with the funds to make your payment in time.

You can get stuck in a debt cycle

We can't emphasize this enough. If you are not able to pay back your payday loan in time or handle your finances responsibly, you can get stuck in a serious debt cycle that can lead to financial stress and other problems.

Possible payday lender scams

A lot of lenders don't operate with integrity and can try and scam you. If you do not do your research beforehand, you could be putting yourself at risk.

How many payday loans are too many payday loans?

If we're being honest, even one payday loan can put you at risk. You're better off looking at alternatives, which we'll get into below.

What alternatives are there to payday loans?

If you're not ready to apply for a payday loan, know that there are ways you can borrow money when you're strapped for cash. Here are some alternatives you can try:

A personal loan from a bank or credit union

You might want to think about applying for a personal loan through a traditional financial institution or credit union if you currently have an account there. You'll likely be granted a personal loan with a favourable interest rate and repayment period because you already bank with them.

Increase your credit card limit

You might also want to think about raising your credit card's limit. One advantage of raising your credit limit is that it offers the flexibility to cover your urgent expenses without the potential risks of a payday loan. Furthermore, if you can make your minimal monthly payments, alter your plans for spending and saving, and pay off your credit card debt, raising your credit limit will help you build credit, while taking out payday loans won't.

Credit card cash advance

A cash advance line of credit lets you get cash quickly when you need it. Unlike a traditional bank loan, when you get a cash advance, you can continuously access funds up to a predetermined amount as you need.

Ask a family or friend

Worst comes to worst, ask a family member or close friend to lend you the money if you need financial support. Not only can you avoid interest rates, but you'll likely be given more flexible repayment options than you would receive with a traditional bank loan or payday loan. Just make sure you're able to pay them back, or you could be setting yourself up for some awkward conversations in the future.

Slush fund

A slush fund is emergency money that you can place aside to meet unanticipated costs or casual expenses, just as an emergency fund. But, a personal slush fund gives you more freedom than a standard emergency fund.

Ideally, you should think about opening a high-interest savings account if you want to profit from the money you put into the bank. You can withdraw money from these savings accounts whenever you want to pay for necessities and receive a small return on your deposits.

Will getting a personal loan impact my credit score?

Yes, a personal loan will help build credit. The payment history on your personal loan has the largest impact on your credit score. Establishing a positive payment history through consistent, timely, and full personal loan payments will greatly improve your credit score and look like a green flag on your credit report, which you'll need in the future if you want to take out larger loan amounts in the future.

Just keep in mind that to get a traditional loan from credit unions and banks, you'll need to have a good credit score when applying. Not sure what your credit score is currently? Get a free credit score check and build your credit with KOHO!

Does paying off a loan amount impact your credit?

As we mentioned, getting a loan and making routine payments toward your loan amount will improve your credit score. But what happens when the loan is fully paid off? Does paying off loan credit impact your credit history?

Your credit score may actually decrease a little when paying off debt, as opposed to rising. Your credit report will show no activity since you are no longer making regular payments toward debt repayment, which could affect your score.

So, how can you fix this? In order to show credit bureaus that you can manage your debts properly, you should keep making on-time payments on your credit card debt and any other loans you may have. Furthermore, increasing your credit mix—that is, the variety of loans you now hold—can also raise your credit score.

How do payday loans work?

On the surface, payday loans may seem like a great way to secure extra cash when you're stuck living paycheque to paycheque. But, in reality, payday loan debt is a type of debt you don't want to have, and it has everything with how payday loans work.

There are many different lenders available online and in person. During the loan application process, your lending company will likely ask you to provide a signed, posted-dated cheque. Alternatively, they may ask for your permission to withdraw what you owe directly from your active bank account at the end of your repayment term, which can range from two weeks to a month.

In the event that you are unable to pay your current payday loan at the end of your repayment term due to financial difficulties, you do have the option of rolling over the loan amount to the next month. However, many payday lenders do charge an additional non-payment fee for this.

Okay, so what makes payday loans bad? Basically, financial experts frequently characterize payday lenders as predatory lenders because of their infamously high interest rates. Since payday loans are high-interest loans with short repayment periods and several extra fees, there aren't many restrictions on who can get one.

That said, while it may be easy to get approved for a loan from a payday loan provider, it's important to note that these companies typically take advantage of those who are experiencing severe financial strain.

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