What do you need for a payday loan?

What is a Payday Loan? 

A payday loan is a short-term unsecured loan, usually characterized by high-interest rates. Payday loans are also called salary loans, cash advance loans, or payday advances. The word “payday” in “payday loan” refers to when the borrower writes a postdated cheque for the payday salary to the lender but receives a part of that payday sum in immediate cash from the lender.  

Payday loans are very helpful because they can help cover important or emergency costs, which would otherwise cause a financial burden if not covered. They are designed to be quick and easy to qualify for, provided the applicant has a job. They are also intended to help the consumer get quick funds to hold onto until they receive their next paycheck.  

Basic Requirements for a Payday Loan

The main problem with traditional bank loans is the laundry list of requirements. Many lenders usually require a high credit score before you can be considered. Also, you will need to provide collateral, like a house or building, before you can be granted a loan. This means you cannot qualify for a bank loan unless you have a decent credit score and can provide collateral of some sort.  

Payday loans, however, do not work like this. Lending companies will not dig into your credit score, nor would they demand collateral. This makes the process of obtaining such loans quite easy. After all, they are short-term loans, and the goal is to determine if you can repay them in a week or two. Requirements to get a payday loan often differ by the lender. However, most lenders usually require you to meet the following: 

Be at least 18 years of age

To start with, you need to be at least 18 years old. This ensures that you are legally employed, and you can legally open a bank account. This is very important as you would need these two things to qualify for a payday loan. 

Lending companies also require you to be of legal age to guarantee creditworthiness. Even though you might not be discriminated against based on age, you can be declined a payday loan if you do not have at least three months of work, three months of owning an active bank account, and previous loan history.  

Proof of Identity 

Another requirement you will be asked to provide is proof of identity. Once you can provide a driver’s license or an employee ID to lenders, you are good to go. You can also check for a list of legal IDs you can provide in Canada. 

The essence of this ID is to show proof of your name, age, and address. An address proves that you are a real person and that other information provided is accurate. Payday lenders can also verify data such as your bank account information through your ID. 

Proof of Income 

Remember that payday loans are designed to meet urgent needs, and you have to pay back such loans by your next salary. To this end, payday lenders need proof that you can pay back on time. Most lending companies will require you to have a job for at least three months. This proves that you have a regular source of income and that you will be likely to pay back in the nearest future.  

Some payday lenders also require that you have a minimum income per month. By providing proof of income such as your monthly payslip, you can show that you qualify for their minimum loans. 

An active bank account 

Part of the basic requirements for payday loans is an active bank account. After all, payday lenders might need to deposit the money somewhere. You will need an active bank account that is not less than three months old. Lending companies want to confirm that you have received income from your current employer, which further verifies your employment and income stability. This is all part of a process to ensure that you can pay back the short-term loan.  

Be a Canadian citizen

This requirement is non-negotiable. To apply for a payday loan in Canada, you must be a Canadian citizen. It simply builds on your employment verification, credibility, and the ability to open a bank account in the country. Being a citizen also helps to clear any tax regulations. 

This does not mean that legal residents may not qualify for loans. However, there are other categories of loans that they can apply for. Some of these categories work similarly to payday loans but may require some form of collateral. 

Not in Bankruptcy 

You will not qualify for a payday loan if you are bankrupt or nearing bankruptcy. Payday lenders want proof that you can pay back the loan, and bankruptcy directly oppose this capability. This is the reason why you should not rely on payday loans if you are deep into debt. Payday loans aim to help you in emergencies, not to put you further into debt.  

Short-term debt ratio 

Even though payday lenders do not require a good credit score or history, they still want proof that you can handle loans of this nature. If you have had other loans before this period, you can let them know about it. Showing off previous loans (especially payday loans) proves that you know how loans work and give an assurance that you will pay them back on time. It also increases your likelihood of approval. 

Conclusion 

Since payday loans do not require lenders to check your credit score or history, you need to provide proof that you can pay off these short-term loans. This is what this article has discussed.  

It is noteworthy that there are a few instances where your proof of income might not be approved. Disability income, student loans, social assistance, insurance income, pension income, and self-employment often won’t qualify for such loans. However, you can contact your payday lender to ask for specific requirements concerning your income qualifications.