Financial Consumer Agency of Canada
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Financial Consumer Agency of Canada

www.fcac-acfc.gc.ca

 

Payday loans

A payday loan is a short-term loan that you promise to pay back from your next pay cheque. Fees and interest charges make payday loans a very expensive way to borrow money. These loans are offered by privately owned companies that are not regulated by the federal government.

If you get a payday loan, all payday lenders will require you to provide a postdated cheque or to authorize a direct withdrawal from your bank account to pay back the loan, along with all the different fees and interest charges that will be added to the original amount of the loan.

Things to consider

  • Ask yourself if you really need to take out a loan, or whether you can get by until your next pay cheque.
  • If you need the money immediately, consider making other arrangements. For example, you may be able to cash in vacation days at work. Or, you might consider getting a short-term loan from a family member or friend.
  • Ask your bank or credit union for overdraft protection on your bank account, or a line of credit. These are relatively inexpensive ways of having access to extra funds, for short-term use.
  • Ask about all the fees, charges and interest that apply when you first get the loan, and what other charges you will owe if you can't pay the loan back on time.
  • Ask for a copy of the loan agreement. Read this document carefully before signing it, and keep a copy for your records.

Remember to borrow only an amount that you are 100 percent sure you can repay on the due date of the loan. If you have not paid the loan by the due date, some lenders may cash your cheque or process the direct withdrawal you signed on the day after your loan's due date, and charge you another fee. If it is sent to a collection agency, this will likely be reported to a credit-reporting agency and could have a negative impact on your credit report.

For more information on payday loans, read FCAC’s publication Payday Loans: An Expensive Way to Borrow.


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Date Modified:
2013-04-16