Payday loans guide
Find out all you need to know about payday loans in Canada with our handy guide.
Get up to speed on what to look for during your search, then you can compare payday loans to find
the best provider, apply online and get the funds deposited right into your bank account.
What is a payday loan?
A payday loan is a very short loan you take out with the commitment to pay it back from your next
pay cheque. It is also know as a payday advance or cash advance. If you're short on cash right now,
but you're expecting a paycheque in the near future, a payday loan can provide you with the fund that
you need now.
A payday loan is a very expensive way to borrow money that charge high interest rates and are not
intended as a solution for long term financial problems.
How do payday loans work?
Once you have been approved for a payday loan, the cash will be deposited directly into your bank
account. One your next pay day, the amount will be withdrawn from your bank account plus interest.
During the application process the payday loans lender will ask for proof that you:
Have a regular income;
A permanent address
An active bank account
Are over the age of 18
As a security measure to ensure you pay back the loan all payday lenders will ask that you provide a
post date cheque or authorize a direct debit from you bank account for the loan amount plus all the
interest and fees.
You will also be asked to sign a loan agreement, or at least you should. If you have not been offered
one, it's best to ask for a copy of the loan agreement, as this will help to avoid any miscommunication
in the future.
By signing this agreement you acknowledge that you will pay all fees, interest and charges associated
with the payday loan so be sure to read it carefully.
How much do payday loans cost?
Payday loans are very expensive ways to borrow money as they are unsecured (ie. you do not have to
pledge an asset such as a house or car as collateral against the loan), so payday loan lenders charge
higher interest rates.
The following fees and charges can occur with payday loans, but not necessarily on every one. Please
check the payday loan agreement very carefully before taking out the loan.
Payday loans interest is charged right from the day you take out the loan until the payback date
including all the fees.
Payday loans lenders used to be able to charge an insane maximum 60% interest rate on a loan,
according to the Criminal Code of Canada. However, many provinces have recently passed maximum
loan caps that are much lower than this.
There have been court cases where payday loan lenders have taken customers to court for not paying
back a payday loan, and the courts ruled in favour of the borrower as they determined that fees and
charges connected with payday loans should actually be counted as interest and when totalled up,
were alot higher than the 60% interest allowed, and were disallowed.
That is why you will see payday loan charges show as $21 per $100 rather than 21% - as all fees and
charges need to be included in the total.
Province by province payday loans maximum fees are as follows:
BC: $23 per $100 borrowed
Manitoba: $17 per $100 borrowed
Nova Scotia: $31 per $100 borrowed
Ontario: requires federal designation before the maximum total cost of borrowing cap for payday loan agreements will
come into force
Saskatchewan: $23 per $100 borrowed (30% on defaulted loan)
These are all types of charges companies can include in the loans. They are also known as
convenience or verification fees.
These fees can cost anywhere from $10 to $35 for every $100 borrowed - or 10 to 35 percent of the
Sometimes a payday loans lender may act as a broker between you and the lender and charge a
'broker fee' for arranging the loan. This would be over and above any interest charged.
If you don't pay back your fee, the lender could send this to a collections agency who will contact you
about the debt and try and collect it. The lender may then carge a few for collecting it.
Early repayment fee
This is a fee that can be charged if you pay your loan back early.
Initial or one-time set-up fee
Some payday loans lenders charge a one-time set up fee of between $10 to $15 if you are a first-time
Loan repayment fee
This is a fee that applies when you don't repay the loan in cash on or before the due date.
This fee is charged if mail that is sent to the address that you provided during the application is
returned or if the phone number provider doesn't work when the payday loan lender tries to get in
touch with you.
When the payday loans lender goes to cash the pre-authorized cheque or direct debit you provided
and there isn't enough cash in your account, the lender could charge a non-sufficient funds or NSF
fee, as a bank would, and this can range from $25 to $75.
As a double whammy your bank or credit union may also charge you a NSF fee if there is not enough
money in your account.
Ironically, many payday loans lenders say that using their services is cheaper than taking a NSF
charge from the bank if don't have enough money in your account to make a payment.
Roll-over, renewal, finance, additional, extension fees
This fee is applied when you don't repay the loan in cash on time and you need to rollover the original
loan into another time period. Before this is done, you'll typically need to pay this additional fee.
Wage assignments or liens on personal property
A payday loans lender may try and get you to sign agreement where you say that you give your
employer authority to sign over all of your pay to the payday loans lender if you don't repay the loan.
In many provinces, this is illegal.
If this is happening to you and it's illegal in your province, you can call the Financial Consumer Agency
of Canada toll-free at 1-866-461-3222.
Also, payday loans lenders may also try to get your personal property as a collateral or security for
the loan in case you can't pay it back. Just note that the value of this personal property such as a car
or stereo could be greater than the amount of the loan you are receiving. Once it's given to the lender
it could be very difficult to get back.
Some payday loans lenders could also offer you insurance coverage, such as death or disability
insurance. This insurance is usually very expensive and you may not need it. Get any details on what
it covers, how much it costs and how you can make a claim.
The payday loans lender will also need licenses to sell insurance so ask to see proof that they're
licensed. You can call the Financial Consumer Agency of Canada toll-free at 1-866-461-3222, to find
the appropriate government body in your area that can hlep with this issue.
Some payday loans lenders may also offer electronic cards that allow you access to different branches
of the same payday lender. These can be loaded with your own personal information and used like a
debit card and can come with may more fees attached, so please check the fine print on any
agreements. Additional fees can include issuing fees, reloading fees and if you lose the card, the funds
may not be reimbursed to you.
How much can you borrow with a payday loan?
The maximum amount you can borrow is typically limited to 50% of the net amount of your next pay
cheque, that is after all deductions for income tax, CPP, etc. For example, if your pay cheque is $1,500
net every two weeks, your payday loan could be for a maximum of $750 ($1,500 x 50%).
How long can you borrow money for with payday loans?
Normally, you have to pay back a payday loan on or before your next payday (usually in two weeks or
less) and that is why many payday lenders offer maximum loan terms of 15 days.
Who offers payday loans?
Payday loans are offered by privately owned payday loans companies and also by many places that
you can cash cheques. The provincial governments are responsible for regulating payday loans
companies and lenders as the federal government does not regulate them.
You can find a list of the payday lenders included in RateSupermarket.ca's payday loans comparison.
Will a payday loan show up in my credit history?
Whenever you apply for credit or to borrow money using a credit card, loan or mortgage, the lender
will typically run a credit report to view your credit history to gauge how likely you are to repay the
You can find further details on what affects your credit report here.
Currently payday loans will not show up on your credit report as payday loans lenders are not
currently registered with the main credit reporting agencies. On the flip side, paying off a payday loan
on time will also not improve your credit score.
However, if you do not repay your payday loan on time and it's sent to a collection agency, they could
send this to the credit-reporting agency, which could in turn negatively affect your credit report.