Money Management

5 things about Pay Day Loans you should know

Pay day loans are taken out by all sorts of people to cover all sorts of expenses.  Here are five facts you should know about pay day loans in Canada before you take out a pay day loan.

1.     In Canada pay day loans are strictly regulated

Canada has laws in place to protect consumers from unscrupulous pay day loan practices. These laws have been commended by other countries which have perceived problems with the pay day loan industry.  A pay day loan is permitted under section 347.1 of the Criminal Code of Canada.  However, the provinces need to enact their own specific legislation.   Most provinces have put into place specific laws to regulate pay day loans, these include, a cap on the amount of interest which can be charged.   You should therefore check what the rules are for your province and ensure that your choice of pay day loan provider complies with its legal obligations towards you as its customer. 

2.     They should be avoided by people who are struggling with debt

If you have problems with your debt and are thinking of using a pay day loan to shift a debt from one creditor to another you may end up making your problem worse.   Pay day loan providers expect to be paid by your next pay day (or whatever date you set for the repayment of the loan).  If you are late with repayment this will cause you problems:  for a start the interest rates charges by pay day loan providers are not intended for long term borrowing so you are likely to end up further and deeper in debt.   It can become difficult to break the debt cycle.   If you have problems with debt you should consider seeking help from an organisation like Credit Counselling Canada. 

3.     Consider your other options

Pay day loans are not the cheapest way to borrow money.  Consider all your options.  Clearly if you have savings this is likely to be the best way to fund an emergency purchase.  You may also have a credit card or a pre-authorised overdraft.    Bear in mind however that even if a pay day loan is not the cheapest option it may be the most suitable for your circumstances.  Some of the key advantages of taking out a pay day loan is that they are quick, have virtually no paperwork and are accessible 24/7.   Whether you need a pay day loan or can use some other, equally suitable, cheaper form of borrowing will depend on your circumstances.

4.     Shop around

Not all pay day loan providers are the same.  Use a lender who sets out all its fees and charges in a clear and easy to understand way.  For example, the sliding scale as provided by    On this lender’s website you enter the amount you wish to borrow and the number of days you wish to borrow for and you will immediately be told how much you will be charged in interest and fees.  Do not be tempted to borrow more than you need to and set the number of days you borrow for at a level which is as soon as possible (but realistic). 

5.      Read the terms and conditions

Hopefully you wouldn’t enter into a long term loan without understanding all the implications – Just because it can be quick and easy to get a pay day loan don’t ignore the terms and conditions.  Check you understand the terms of borrowing and what exactly you are getting into before you sign up.   If you are too keen and discover something you are not happy about remember that pay day lenders will have a very short period of time in which you can cancel an agreement if you change your mind.  The cancelation period will differ from province to province but is around one or two days. 

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