Payday Loans with No Credit Check: How Do They Work?

When you have a low credit rating, it’s difficult—even impossible—to obtain a loan from traditional financial institutions. Payday loans with no credit check let you borrow an amount up to $1,500 for a short term and deal with an urgent need for money.

A limited amount

The payday loan involves borrowing an amount proportional to your salary—up to $1,000, or even $1,500, depending on the institution—that is repayable when you receive your next pay, usually by a pre-authorized payment from the account or a post-dated cheque.

A short-term loan

As their name indicates, payday loans are very short-term loans repayable on your next payday. They are therefore not suitable for people who need a loan repayable in several weeks, or even several months. In Québec, this type of loan is renewable.

A loan with no credit check

Payday loans aren’t granted or denied based on the applicant’s credit rating, as the lending institution doesn’t take this into account to make its decision. Indeed, when they examine the file, the financial institutions that offer this type of loan focus on checking that the borrower has a stable situation, is able to repay the loan, and is not in a situation of over-indebtedness: in particular, they check the account statements for regular income, outstanding loans, and the possible presence of rejected payments or another short-term loan. In the latter two cases, the application is usually rejected.

Because they are granted without taking the applicant’s credit score into account, payday loans can be used in particular by people who don’t have a credit card.

A fast and easy process

To obtain this type of loan, the procedure is usually done online. Just fill out a form and provide the requested documents (two pieces of identification, voided cheque, last pay stub, bank statements, and proof of residence) so that the institution can examine the file. Most of the time, a response regarding the eligibility of the file is obtained within the business hour following the receipt of the documents, and in any event within 24 business hours. The amount granted is paid out by direct deposit to the applicant’s account or a prepaid card.

A solution to be reserved for emergencies

As it is a more expensive solution than a conventional loan or an ordinary line of credit, the payday loan should be reserved for emergencies, such as paying bills before a service cut-off, repairing a vehicle used to get to work, or uncovered medical expenses. As a comparison, the annual interest rate of store cards varies between 25% and 29%, while that of a payday loan can reach up to 35%, the maximum rate allowed under Québec law.

Although Québec amended the Consumer Protection Act in August 2018, in particular by prohibiting the billing of brokerage fees, and made payday loans more affordable, they remain an expensive solution. They should therefore only be used in case of an urgent need for money.