A payday loan is a short-term loan that can help you cover your expenses until your next payday. A payday loan is very expensive compared to other types of loans or credit products because of the high interest rate and fees that apply.
You can usually borrow up to 50 percent of your next paycheque. You must pay back the loan, plus interest and fees, from your next paycheque ― usually within two weeks of borrowing the money.
Before giving you a payday loan, a payday lender will want proof that you have regular income, a permanent address and a valid bank account. You will also be asked to pay back the loan either in cash, by cheque or directly from your bank account (in this case you will have to give the payday lender a post-dated cheque, and/or authorize a withdrawal from your account). You also have to sign a loan agreement, which indicates how much interest you will pay on the loan, plus any fees that apply.
A payday loan is a very expensive way to borrow money. The interest charged on a payday loan is much higher than the interest charged on other types of loans. All the extra fees ― such as for a late payment ― can add up quickly and make it difficult for you to pay the loan back.
Besides interest, payday lenders charge many other fees. Check with the payday lender to see which of the following apply and what they mean:
Some provinces and/or territories may have laws to protect your rights when dealing with payday lenders. In some provinces or territories, payday lenders may not be allowed to "roll over" your payday loan, which means extending your existing loan for a fee, or giving you a new loan to pay off the existing loan. Check with the consumer affairs office of your province or territory to find out what your rights are before signing up for a payday loan.
Here are some cheaper alternatives to getting a payday loan:
Here is a list of questions you should ask yourself before applying for a payday loan:
For more information on payday loans, contact the consumer affairs office of your province or territory. A list of these offices can be found in the Canadian Consumer Handbook, published by Industry Canada. Visit Industry Canada's website, or call, toll-free, 1-800-328-6189.