1. Understand the risks of a payday loan

What is a payday loan? Are there risks or other options to payday loans?
This question has an answer and 4 steps

1. Understand the risks of a payday loan

Payday lenders charge much higher interest rates and fees than banks, credit unions, or credit cards.

Because of their high interest rates and fees, the risk of taking a payday loan is you will get into more money trouble. This happens to a lot of people.

If you can’t repay your payday loan on time, the lender can:

  1. Add late fees and other charges to your loan. They can also charge interest for the time after your payment was due. This can be up to 60% as an annual rate. This can make it very hard to pay back the loan, and can cause you a lot of trouble in the future.
  2. Send your file to a collection agency, which means that the collection agency will try to get repayment from you. This will affect your credit score and make it harder for you to get loans in the future.
  3. Take you to Small Claims Court. If the lender wins in court, the court might allow them to take some of your money or property. The court may also allow the lender to take money directly from your paycheque. This is called garnishing your wages.

The lender can’t give you a new loan to pay off your old loan.

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Ontario Ministry of Government and Consumer Services
Reviewed: July 18, 2018

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