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What should I know about payday loans?

Payday loans are short-term loans with high interest rates. They can be expensive and difficult to pay back, so it is important to consider whether they are your best option.

Payday loans are often available to people who do not have a good credit rating. They are operated by private businesses that are not regulated by the government. Generally, lenders ask for a pay stub, a bill in your name and proof of a chequing account. These loans must typically be paid back by your next payday or within 14 days. If you change your mind about a payday loan, you can cancel it within 2 days of taking it out.

Interest Rates

Payday lenders can charge a maximum of $14 for every $100. Therefore, if you need to borrow $100, you will have to pay back $114 if you pay your loan back on time.

This type of loan has an interest rate of 2.5% per month, much higher than most other types of credit. Unlike other types of credit, paying the loan back on time will not improve your credit score.

What happens if I can't pay back the loan?

You may have to pay another fee to the lender if your cheque or pre-authorized debit repayment does not go through. In addition, your bank could charge you a fee as well. Your loan will become harder and harder to pay back as interest grows.

After some time, if you cannot pay back the loan, the lender or a collections agency will try to contact you. They could contact your employer, friends and neighbours to get in touch with you. The lender or collections agency could sue you for the amount you owe, including interest. This could be very expensive and could damage your credit score.

What should you consider before taking out a payday loan?

• Do you need this loan? If you can pay your expenses later or get money from another source, it is best to avoid these loans.
• Can you access another form of credit? There are cheaper ways to borrow money, such as getting a line of credit, a credit card advance or another type of loan from your bank. If you are eligible, these loans are not as expensive.
• Do you understand all the fees involved? Ensure you know all the costs, including the costs, if you cannot repay the loan.
• Are you able to pay back the loan in full? It can be very expensive if you cannot repay the loan on time. It also may be hard to keep up with your other daily expenses when you have to pay back the loan with interest.
• Have you read and understood the loan agreement? You will need to sign a loan agreement when you get your loan. Make sure to read it carefully and keep a copy for yourself.

Where can I go for help?

If you have difficulty paying your bills or repaying your loans, you may want to contact a credit counsellor.

If you would like information about the rules for payday loan companies or if you would like to file a complaint, contact the Ministry of Public and Business Service Delivery and Procurement.

For More Information

• Newcomer’s Guide to Consumer Protection - A guide that contains helpful information for newcomers about buying goods and services. From Consumer Protection Ontario.
• Pay Day Loans - Information on your rights with payday loan companies and how interest accumulates through these loans. From the Financial Consumer Agency of Canada.
• Stop collection agency calls - This webpage explains what a collection agency is and what you should do if one contacts you. From the Ministry of Public and Business Service Delivery and Procurement.
• My Money in Canada - Resources and tools to help build your Canadian financial literacy skills and advice on how to improve them. From Prosper Canada.