Payday Loans

Payday Loan Requirements in Canada

As mentioned above, payday lenders are regulated and have to comply with specific requirements in order to operate. These requirements were created to protect Canadian consumers, and include:

• Insurance is optional on a payday loan
• Borrowers cannot be charged more than 15% interest on the principal amount of a payday loan
• Lenders cannot sell or offer to sell any incremental and/or additional goods and services along with a payday loan
• Lenders cannot provide a loan of more than a fixed percentage of paycheque proceeds (the percentage varies between 30% to 50% across provinces)

• Borrowers can cancel a payday loan contract within 2 business days of origination, without paying any penalty fees or providing a reason to the lender
• Payday loan debt cannot be rolled over into a new payday loan, as it is prohibited for a borrower to receive a second loan from the same lender before paying the first one

A failure to meet the terms of a payday loan agreement cannot result in the lender pursuing one or more of the following actions:

• Contacting the borrower more than 3 times a week (excluding regular mail) or on statutory holidays
• Contacting the borrower’s immediate or distance relatives, household members, friends, neighbours or acquaintances at any time
• Using excessive pressure or threatening language to coerce payment

• Processing a post-dated cheque or pre-authorized debt more than once if it means that the financial institution will charge additional fees, such as overdraft or insufficient funds fees

Payday Lending Regulation Variations by Province

What To Consider Before Getting a Payday Loan

Before obtaining cash via a payday loan, the following should be defined and reviewed in detail:

Needs

Before borrowing via a payday loan, it is important to understand your financial needs, and whether they justify the higher interest payments that come with a payday loan. For debts that can be negotiated, it could be worthwhile to speak to the creditors directly to restructure the outstanding amounts and/or develop a specialized repayment plan, if that option is available.

Interest, Penalties and Other Fees

The unsecured nature of payday loans means that while the borrower can avoid asset seizure in the event of default, interest rates can become extravagantly high. This is even before penalties and other fees come into consideration. It is therefore important to read contract documents carefully to understand the consequences of missed/late payments.

Alternatives

Besides payday loans, credit unions or credit card companies also offer short term funding options. Again, if that option is available, it may be worthwhile to compare costs, before deciding upon a final option. Fast cash is attractive, but always take into account the long term cost.

Loan Term

The length of the loan is a major consideration. If the borrower is in immediate need of cash and payday is still a few weeks away, a payday loan is a better option than for someone whose payday is a few days away and/or does not have immediate cash needs.

Principal Amount

The amount of cash being borrowed should be studied closely prior to receiving the cash, as each incremental dollar yields a higher interest payment. In a facility such as a payday loan, this gets magnified due to the significantly higher interest rate charged.

Comparing the Cost of Online Payday Loans and Cash Advances

The most comparable alternative to a payday loan, wherein borrowers acquire short term cash to assist with immediate expenses, is a cash advance. There are two types of cash advances:

Type I is pretty synonymous with a payday loan; the lender provides a fixed principal amount that is tied to the borrower’s income and is intended to be repaid on the borrower’s next payday.

Type II is structured as a line of credit, where the cash advance offered is dependent on the unused credit limit on the borrower’s credit card, rather than on income. This type of cash advance is provided directly by the credit card company (not the issuer), and receives the same type of treatment as any other ordinary purchase made with a credit card.

Depending on the borrower’s financial situation and credit card features, it may or may not be advantageous to use a credit card cash advance. Some key factors for borrowers to consider if choosing between these two options are: current credit rating, and credit card contract terms. In some cases, credit card companies charge higher rates on cash advances than on ordinary credit purchases, so it is important for the borrower to understand the rate differential, and choose accordingly.

Other Cost-Effective Alternatives to Payday Loans

There are many ways to access cash online, and many options have competitive interest rates and terms, so it’s smart to educate yourself about all of your options before choosing to go with a payday lender. Research by the Government of Canada found that 57% of payday loan users were aware of their high costs versus their alternatives.

Online Options

A major reason many turn to payday loans is that they are unable to access cash by any other means; 65% of payday loan borrowers do not have access to a credit card. But if this is you, you should know that there are many financing options available to those who have been turned away by a bank or credit union. Online lenders offer loans and credit products to new Canadians, those with bad credit, and those who don’t qualify for more traditional financing. Many of these lenders are accessible from this website, and you may be able to qualify for their products online and at a lower interest rate than with a payday lender.

Personal Loans

Below you’ll find a list of reputable companies that offer personal and installment online loans. These loans can be for small amounts, and come with much lower interest rates than payday loans. Take a look to compare your options, including products offered, interest rates, terms, qualifications and even reviews from other customers. When you’ve found a loan company you like,  hit “Apply Now” next to the lender to start the application process.

Borrowing vs. Using Savings

Finally, it’s worth noting that research has shown that even those with high income and savings turn to fast cash loans to cope with unexpected expenses. This is believed to be an education issue; people would rather keep savings accounts ring-fenced, and take on new debt in the form of a payday loan, than dip into rainy day funds. However the maths on this does not add up, as new debt costs more than using savings, and can potentially affect your credit rating and overall financial health too. The best advice states that it is better to use savings when encountering an unexpected expense, and then rebuild them slowly from your monthly pay, than it is to take on unnecessary debt.

Frequently Asked Questions About Payday Loans

Can I apply online for a payday loan?

Yes, getting a payday loan in Canada is simple, because you can apply online. Online options are very convenient, and once funds are approved, cash will be deposited into your bank account via a transfer. However you can also get them in store; there are lots of payday lenders that have stores all over Canada.

What do I need to qualify for an online payday loan?

Borrowers must be at least 18 years old, have a steady verifiable source of income, access to a bank account, and a permanent address.

Can I get a payday loan with bad credit?

Yes. Payday loans are a very useful way to access cash for people that have bad credit and can’t get approval anywhere else. They are also intended for people who want to avoid a credit check, for any reason. Payday loans should however still be your last loan option, because they are expensive.

How quickly can I receive my payday loan?

Lenders typically approve payday loans within a day, and sometimes even within a few hours of submitting your application form. Cash is usually automatically deposited into your account via a bank transfer. This makes a payday loan one of the fastest and most convenient ways to borrow money.

Do I need a bank account to get a payday loan?

Yes. You will need access to a bank account, and to provide that bank account’s details when applying for a payday loan. This is because the payday lender will transfer cash into your account. Those without a bank account will struggle to secure a loan of any kind.

Is using an online payday lender safe?

Payday loans and payday lenders are subject to regulation aimed to making them as safe as possible for consumers. However, this doesn’t mean there aren’t risks. You should always exercise caution when using any website to input private, personal or financial data, and ensure your connection and device are secure to prevent this information from being compromised when you apply online to a payday lender.

In addition to data security risks, if using a payday loan you should know that payday lenders charge the highest interest rate of any type of lender, meaning that payday loans are the most expensive way to borrow money.

Am I at risk of a collection agency if I borrow money with a payday loan?

Yes, potentially. If you don’t repay your loan on time, you will initially be subject to fees and interest; this interest will increase as time passes. Eventually, the lender may decide to pursue payment via a collection agency, or may decide to sue you for the debt. You can avoid the threat of a collection agency by making sure you can pay back any money you borrow.

How long do I have to repay my payday loan?

That depends on the loan agreement you signed when taking out the loan. Most who borrow money via a payday lender do so with the intention of paying the money back within a few weeks. If you extend your loan beyond this, your loan may end up as a debt trap, requiring you to borrow more money to cover its cost.

Does my employer need to know I’ve taken out a payday loan?

No. While you need to be able to prove your pay when applying for a payday loan (in order for the payday lender to verify you’ll be able to repay the loan), your employer does not need to know about the loan, and the payday lender should in no circumstances inform your employer. It is illegal for payday lenders to take payment in the form of automated paycheque deductions.

How fast can I get my payday loan delivered to my bank account?

Your cash is typically delivered to your bank account within a day, but you could receive a deposit within just a few hours. And if you have online banking, this means that you can access money borrowed via this type of loan extremely quickly.

How much will a payday loan cost me?

That depends on which payday lender you go to, how much money you borrow, and for how long. Interest charges usually make up the majority of the cost, though there are fees to account for too. Make sure you understand the entire cost of your intended borrowing before agreeing to it.

What’s the flat fee advertised in my payday loan?

Most payday loans are intended to be repaid in one lump-sum, so their cost is often advertised as a ‘flat fee’ rather than as an interest rate. You’re likely to see a lender state something along the lines of “$15 per $100 borrowed” – but you should know that this is only if you pay back the cash on time, and does not account for the high fees, interest and other factors that can increase cost if you fail to repay on time.

Can I get a payday loan for my business?

No, not in the same way as you can as an individual. If your business needs to borrow money and is struggling to find a lender it can qualify with, the best option is usually a business cash advance. This short term financing option relies on the business’s ability to pay back the money borrowed (plus interest charges and fees) with expected business income. For other borrowing options for your business, take a look at our business financing page.

Do payday loans build credit?

No, as even if you repay all of the money you borrowed on time, most payday lenders do not report payments to credit bureaus, so positive payment history will not be taken into account in your credit score. It is actually more likely that a payday loan will harm your credit, as high fees and an unaffordable interest rate make it much harder to pay back.

How do I choose a payday lender near me?

With so many options to choose from, picking a payday lender can seem tough. To find one that works for you, firstly check whether the lender follows regulations. Then ask: are they transparent about fees? What are their reviews like? Lastly, assess whether their offerings work for you needs e.g. do they offer a guaranteed turnaround time, or have an online-only option?

Can I pay off my payday loan early?

Yes. You may be subject to a fee for doing so, but this varies by province.

What happens if I’m denied a payday loan?

If you’re denied a payday loan, it’s probably because you already have an active loan with that lender. Try applying through another lender. Or, work on paying off your outstanding debts and building your credit with services such as credit counselling or a debt management program, so you can more easily access other borrowing tools.

How much pay do I need in order to secure a fast cash loan?

Although payday loan approval is typically based on employment pay, as long as you have some form of pay coming in, it doesn’t actually matter where it comes from, or how much it is. All that matters is that you can pay back the cash you borrow once you receive your next pay. This means these loans are available to those receiving pay via benefits, child support and so on.

Alternatives to Payday Loans:

Below you’ll find a list of reputable companies that offer personal and installment online loans in Canada. Take a look and compare your options, including products offered, interest rates, terms, qualifications and even reviews from other customers. When you’ve found the loan company you like,  hit “Apply Now” next to the lender to start the application process.