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What should I know before getting a payday loan?

What should I know before getting a payday loan?
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CLEO (Community Legal Education Ontario / Éducation juridique communautaire Ontario)
Consumer Measures Committee

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What should I know before getting a payday loan?
This question has an answer and 5 steps
July 18, 2018

Before you sign a payday loan agreement, it’s important for you to know:

  • the rules a payday lender has to follow
  • what you are agreeing to

Payday lenders charge much higher fees than banks, credit unions, or credit cards. If you need money for a short period of time and can get a credit card, using it can cost a lot less than a payday loan.

Rules payday lenders must follow

Payday lenders must tell you:

  • the most interest and fees they can charge you legally for the loan, which is $15 for every $100 you borrow
  • when you must repay the loan
  • the total amount you must repay
  • what it would cost to borrow $500
  • the cost of borrowing as an annual interest rate for a 14-day loan

This information must be included in any advertisements the payday lender has.

What they can do

Payday lenders can ask for proof that you have:

  • a regular income, for example a salary or other regular income
  • a bank account
  • a home address

If you are working, the payday lender can call your employer to confirm things like how long you’ve worked there and what your salary is. But they cannot contact anyone else, like a family member or friend, about your loan.

What they cannot do

Payday lenders cannot:

  • charge more than $15 in fees for every $100 you borrow
  • lend you more than 50% of your net monthly pay per loan
  • ask you for collateral. Collateral is property or things that a lender can take from you if you don’t pay your loan.
  • ask for a guarantor. A guarantor is someone who promises to pay a debt for you if you don’t pay it.
  • give you a new loan until the first one is paid off. If you go to a different payday lender for another loan, they will ask you if you have taken a loan from someone else. You may have to give that lender proof that you have paid off your other payday loan.
  • offer you other services they provide when they talk to you about a payday loan. For example, they may also sell gold or jewellery, or cash cheques. 

Know what you are agreeing to

There are some important things that you should ask about and understand before you sign a payday loan agreement. For example, you should find out:

  • if the payday lender is licensed by the Ontario government
  • how much you pay in fees to borrow the money
  • the ways that you can repay the money
  • how much you have to pay if you don’t repay the loan on time

The payday lender must give you a written loan agreement that tells you how much your loan will cost and when you must repay it.

Before you take a payday loan, think about other ways to solve your money problems. You can talk to a non-profit credit counsellor who can help you think about this.

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