What should I know before getting a payday loan?

3. Learn about your options to repay the loan

Most payday lenders offer 2 ways to repay a loan:

  • post-dated cheque

Preauthorized debit means that the payday lender takes money directly out of your bank account on the date you agree to.

With a post-dated cheque, you give the payday lender a cheque that is dated for when you’re expected to pay back the loan. The payday lender will cash the cheque on that date. If you decide to use this method, you must bring a cheque with you when you go to get the loan.

If the payday lender tries to withdraw the money, and your cheque bounces or you don’t have enough money in your account, the lender can charge you a fee. The most that they can charge is $25. They can only charge this fee once, no matter how many times your cheques bounce.

If you don’t have enough funds in your account, you will also probably have to pay a penalty to your bank. They normally charge more than the payday lender, usually about $45 per failed transaction.

Options that are not allowed

A payday lender can’t take money directly from your wages or ask your employer to repay the loan. This means the lender can’t ask you to sign a “” or other document that would let them take your pay.

Repaying early

You can repay all or part of the loan at any time before it’s due. You still have to pay the fees you agreed to but the payday lender can’t charge you extra for repaying the loan early.

Ask for a receipt when you repay the loan. And it’s a good idea to ask the lender to give you back any post-dated cheques or debit forms that you signed.

Repaying late

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

  1. Add late fees and other charges to your loan. They can also charge for the time after your payment was due. This can be up to 2.5% per month. These additional charges can make it very hard to pay back the loan, and can cause you a lot of trouble in the future.
  2. Report you as delinquent or send your file to a , which means that the collection agency will try to get repayment from you. Both of these will affect your 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.

If you can’t pay back the full amount on time, talk to the lender as soon as possible. You might also want to speak with a non-profit counsellor to understand what you can do.

Extended payment plan

Usually payday loans have to be paid back all at once on the date that the payment is due. But if the loan you are applying for is your third one or more within a 63‑day period, the lender must offer you an extended payment plan.

With an extended payment plan, you can make several payments to pay back the loan. These payments are often called instalments. The number of instalments and the amounts you will pay depends on when you get your regular income.

If you get paid once a month or less frequently, the lender must schedule your payments out over at least 2 pay periods. Each instalment can’t be more than 50% of the total amount you owe.

If you get paid twice a month, weekly, every two weeks, or more often, the lender must schedule your payments out over at least 3 pay periods. Each instalment can’t be more than 35% of the total amount you owe.

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