Payday loans

Beware of unlicensed payday lenders

Before you get a payday loan, make sure you are dealing with a licensed payday lender. Contact your provincial or territorial consumer affairs office for information on licensed payday lenders.

What is a payday loan

A payday loan is a short-term loan with high fees that make it an expensive way to borrow money. It is also called a high-cost loan and high-cost credit. You may borrow up to $1,500 and you may have up to 62 days to pay it back.

Payday loans are different from other traditional loans because:

You must pay back some or all of the loan when you receive your next paycheque. If you don’t pay on time, you’ll face more fees and interest charges. This will increase your debt.

What options to consider before getting a payday loan

Make sure you’ll be able to pay the loan back on time and cover your regular expenses.

If you’re facing a financial emergency, you may consider:

Get tips on what to do if you’re facing a financial emergency.

You may also consider other options that are less expensive than a payday loan:

Figure 1: Comparing the cost of a payday loan with a line of credit, overdraft protection on a chequing account and a cash advance on a credit card (based on a $300 loan for 14 days)

Figure 1 demonstrating the high cost of payday loans compared to other credit options, text version follows
Text version: figure 1
Type of loan Cost
Line of credit $5.92
Overdraft protection on a chequing account $7.42
Cash advance on a credit card $7.65
Payday loan $51.00

Source: Financial Consumer Agency of Canada

The costs shown in this example are for illustration purposes only and are based on the following assumptions:

Where to get a payday loan

Privately owned companies offer payday loans in stores and online. They must follow the rules set by the province or territory where they do business.

Each province sets its own rules about payday loans. The territories don’t have specific rules.

Contact your provincial or territorial consumer affairs office to learn more about payday lending rules.

Payday lenders must have a license to issue payday loans in your province or territory. Make sure you are dealing with a licensed payday lender.

Your province or territory may have tools that allow you to check if a payday lender holds a licence.

Select your province in the Consumer Hub to find tools and resources on payday loans.

Beware of online payday lenders located outside Canada. If you have problems with them, it may be difficult to resolve.

How much a payday loan costs

Payday loans are very expensive compared to other ways of borrowing money.

This is because:

These costs may make your loan harder to pay back, which may cause or increase financial difficulties and stress.

Before taking out a payday loan, be sure that you can pay it back on time. If not, your financial situation may get worse. Your debt may keep growing and you may end up paying a lot of money over time.

Fees and penalties

Many provinces regulate payday lending fees and penalties.

Table 1: Payday lending regulations by province
Province Maximum cost of borrowing for a $100 payday loan Cooling off period to cancel the payday loan Maximum penalty for a returned cheque or pre-authorized debit
Alberta $15 2 business days $25
British Columbia $15 2 business days $20
Manitoba $17 48 hours, excluding Sundays and holidays $20
New Brunswick $15 48 hours, excluding Sundays and holidays $20
Newfoundland and Labrador $14 2 business days $20
Nova Scotia $17 Next business day (2 days for online payday loans) $40 (default penalty)
Ontario $15 2 business days $25
Prince Edward Island $15 2 business days n/a
Saskatchewan $17 Next business day $25

What to expect when you take out a payday loan

Here’s what you may expect if you’re considering taking out a payday loan.

Applying for a payday loan

Generally, payday lenders will require proof that you have a:

Before giving you a payday loan, lenders may require you to do one of the following:

Learn more about pre-authorized debits.

Getting money from a payday lender

In most cases, the payday lender will deposit money in your bank account or give you cash.

In some cases, the payday lender may issue you a prepaid card. These are also called cash cards. It may cost extra to activate and use the card.

Paying back a payday loan

Some payday lenders require you to repay your loan at the same location where you got your loan. In most provinces, a payday lender can’t extend or roll over your payday loan.

Provincial laws prevent payday lender from asking you to sign a form that transfers your wages directly to them.

Making sure you understand the agreement

The payday lender will ask you to sign an agreement. Each province has rules about what must be in the agreement.

It typically includes:

Read your agreement carefully before signing it. Ask the payday lender about anything you don’t understand.

What happens if you can’t pay back a payday loan on time

You may have serious consequences if you don’t make your payments on time.

Depending on the laws in your province, these consequences may include the following:

Provincial laws define what a payday lender may do when trying to collect a loan. This includes when and how often the lender may contact you. It also includes what tactics the lender may use to get you to pay.

Contact your provincial or territorial consumer affairs office, for more information on debt collection.

If you don’t make your payday loan payments on time, you may get stuck in a debt trap.

Infographic: Payday loans: An expensive way to borrow money!

Infographic, text version follows
Text version: infographic

The infographic Payday loans: An expensive way to borrow money! is illustrating an example of what can happen when you take out a payday loan.

You need $300 for household repairs. You get a $300 payday loan for 2 weeks. Over the 2-week period, you’ll pay $51 in charges, which is equivalent to a yearly interest rate of 442%. You owe $351.

If you don’t make your payment, you pay a $40 penalty. You now owe $391.

Before you make a decision, explore your options.

This example is for illustration purposes only. The $51 in charges is based on a cost of $17 per $100 borrowed. The maximum a Payday lender can charge, including any penalty fees, varies across provinces. Contact your provincial or territorial consumer affairs office for details.

What you can do if you’re stuck in a debt cycle

You may have trouble making ends meet because you can’t pay your debts. Think carefully about the long-term consequences of taking out a payday loan.

Seek advice from reputable sources to explore the different financial options that are available to you. Qualified professionals may help you find the best solution for your financial needs. Their advice is confidential, non-judgmental and often free.

Some options include:

Learn how to get help with debt.

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