Payday loan: your rights
What you need to know before you take out a short-term, cash advance payday loan from a retail store or online.
How it works
A payday loan is:
- usually a small value loan taken out for a short time, typically until your next payday
- loaned at a retail store or online
- the most expensive consumer loan in Ontario
- an unsecured loan (you cannot put any property as collateral or guarantee for the loan, you need to provide the lender with a post-dated cheque or a pre-authorized debit)
Most lenders do not do credit checks before issuing payday loans. They usually ask borrowers to:
- prove 3 months of continuous employment
- give proof of address (e.g., they can ask to see a utility bill)
- have a chequing account
Payday loans are an expensive form of credit. Before getting a payday loan, you should consider other ways to borrow money (e.g., from family or friends, a bank or credit union or your credit card).
Payday lenders can charge you up to $21 for every $100 that you borrow, this means:
|If you borrow $300 for 2 weeks:||
(fee with interest at 23%)
|1 loan will cost||$63||$2.65|
|2 loans will cost||$126||$5.29|
|4 loans will cost||$252||$10.59|
|6 loans will cost||$378||$15.88|
The Payday Loans Act helps protect people who take out payday loans.
Under the act:
- you can’t be charged more than $21 for every $100 that you borrow
- you can’t be sold or offered any goods or services other than the payday loan
- you have 2 business days to cancel a contract for a payday loan without any penalty (e.g., paying a fee) and without having to give a reason
- “rollover” loans are not allowed (this means you can’t roll what you owe on a payday loan into a second payday loan. This is because you can’t get another payday loan from the same lender before paying your first loan in full)
Rules for payday lenders
Payday lenders must:
- be licensed with the Government of Ontario and follow the rules set by the Payday Loans Act
include specific information on the first page of your contract
- the amount you are borrowing
- the number of days that your loan is for
- what you will pay to borrow the money
- never ask for or accept payment by automatic deduction from your paycheck (assignment of wages )
- display a poster and give out a flyer that explain the cost of taking out a payday loan over time
A lender can’t:
- contact you more than 3 times a week (not including regular mail) or on holidays
- contact your spouse, family, household members, relatives, friends, neighbours, or acquaintances at any time
- process a post-dated cheque or pre-authorized debit more than once if it will result in your financial institution charging you any fees, like overdraft or fees for insufficient funds (if a lender does this, you are entitled to recover these fees from the lender and would not pay the cost of borrowing the loan)
- use threatening or intimidating language
- use excessive or unreasonable pressure
File a complaint
If you believe that a payday lender has broken the rules, you can file a complaint with us.
Find a licensed lender
Before you get a payday loan:
- always check that a lender is licensed (don’t take out a loan unless you see an Ontario license number, even if borrowing from retail stores or online lenders)
- be aware that there are companies that pose as online payday lenders but are actually “lead generators” that collect personal information from people looking to get a payday loan and then sell it to an actual payday lender (sharing this kind of information can put you at risk of identity theft)
Before you take out a payday loan, make sure to:
- plan to have enough money in your account to repay the loan and on the day it is due
- understand how much you will pay for the loan if it’s overdue
Ask the right questions
Before you get a pay day loan, you should ask:
- how much will it cost me to borrow this money?
- how much will I be charged if I don’t pay the loan back on time?
- is this payday lender licensed and in good standing?
- am I being charged more than $21 for every $100 that I’m borrowing?