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What should I know before getting a payday loan?

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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?
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Reviewed: 
September 8, 2020
Answer

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

  • the rules payday lenders must follow, and
  • what you're agreeing to.

Rules payday lenders must follow

Payday lenders must tell you:

  • the maximum fees they can legally charge you 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, and
  • the amount of interest you'll be charged if you can't repay the loan on time, which is 2.5% per month. Payday lenders can only charge interest on the amount of the original loan that you haven't repaid. They can't charge interest on interest.

The payday lender must also include this same information in any advertisements they have.

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 have a job, the payday lender can call your employer to confirm information like how long you've worked there and what your salary is. But the lender can't contact anyone else, like a family member or friend, about your loan.

If you don't have a job, the payday lender can ask for proof of your Ontario Works or Ontario Disability Support Program benefits.

What they can't do

Payday lenders can't:

  • charge more than $15 in fees for every $100 you borrow
  • lend you more than 50% of your net monthly pay per loan
  • ask for collateral
  • ask for a guarantor

A payday lender can't give you a new loan until 7days after you repay any other payday loans you have. If you go to a different payday lender, they will ask if you have taken a loan from someone else. You might have to show proof that you have paid off your other loan.

If a payday lender gives you a loan before they are allowed to, then they can't charge you a fee for the loan. You will only have to repay the amount you borrowed. The lender can also charge interest if you don't pay the loan back in time.

Know what you're agreeing to

Before you sign a payday loan agreement, 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

There might also be other ways to solve your money problems. For example, you can talk to a non-profit credit counsellor to make a plan for paying your debts and expenses. Or, if you need money for a short period of time, using a credit card can cost less than a payday loan.

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