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Payday loans are known to trap borrowers into a cycle of debt, which is why many provinces have placed a number of rules and regulations to protect borrowers.  If you’re thinking about getting a payday loan, be sure you understand your rights as a borrower. 

Key Points

  • Payday loans are provincially regulated. Meaning each province has specific rules and regulations surrounding payday loans.
  • Unlike the provinces, the territories do not have specific payday loan regulations.
  • Payday lenders have stringent rules to follow, so it’s recommended that consumers get familiar with these regulations to ensure they’re being treated fairly.

What Is A Payday Loan?

Payday loans are a specific type of loan provided by a payday lender. Loan amounts are typically small, ranging between $50 to $1,500. They typically must be paid back by your next payday, though terms can range up to 62 days. 

While payday loans are extremely easy to qualify for, they come with very high-interest rates. In fact, payday loans are the most expensive type of consumer loan.

Payday Loans Laws To Protect Borrowers

Payday lenders must adhere to specific rules when it comes to how much they can charge, the maximum loan amounts they can offer, and whether borrowers can take out new payday loans to pay off existing ones (known as a “loan rollover”). 

The exact rules depend on the different provinces and territories, which have their own regulations for payday loans.

Snapshot: Payday Loans Rules By Province

Each province has different costs and rules that lenders must abide by:

ProvinceMax cost per $100 borrowed Max Penalty for Returned ChequeCooling Off PeriodLoan Rollover or Extension
Ontario$15$252 business daysNot allowed
British Columbia$15$202 business daysNot allowed
Alberta$15$252 business daysNot allowed
New Brunswick$15$2048 hours (not including Sundays and holidays)Not allowed
Manitoba$17$2048 hours (not including Sundays and holidays)Allowed, with limits to how much lenders can charge
Saskatchewan$17$25Next business dayNot allowed
Nova Scotia$17$40 (default penalty)Next business day (or 2 days for online payday lenders)Not allowed
Newfoundland and Labrador$14$202 business daysNot specified
Prince Edward Island$15n/a2 business daysNot allowed
Quebec35% AIRn/a10 daysNot specified

Are Payday Loans Laws in Quebec Different?

Payday loans in Quebec are somewhat different compared to other provinces. Namely, the interest rate lenders are allowed to charge is significantly lower than what lenders in other provinces are allowed to charge. 

Strong consumer protection laws have capped the annual interest rate (AIR) in Quebec to 35% for loans. This makes payday loans relatively unprofitable for Quebec payday lenders, making these types of short-term, high-cost loans difficult to obtain in the province. 

Payday Loan Rules In The Northwest Territories, Nunavut and Yukon

In the Northwest Territories, Nunavut, and Yukon, payday lenders are regulated by federal regulations. Like the provinces, payday loans in the territories are available for up to $1,500, with terms ranging from a couple of weeks to no more than 62 days. 

However, unlike the provinces, fees can be much higher. More specifically, payday loan rates in the territories can be as high as $60 per $100 borrowed. 

What’s The Maximum Payday Loan Interest Rate You Can Be Charged?

The highest interest rate a payday lender can charge depends on where you live. Each province and territory has its own limits on payday loan rates. In the provinces, fees range from $14 to $17 per $100 charged, while in the territories, the maximum can be as high as $60 per $100 borrowed.

That said, interest rates on payday loans are extremely high and can be as much as 500% to 600%.  

Ontario, British Columbia, Alberta, New Brunswick, PEI$15 per $100
Manitoba, Saskatchewan, Nova Scotia$17 per $100
Newfoundland and Labrador$14 per $100
Quebec35% AIR

Payday Loan Borrowing Limits In Each Province

Not only are there limits on the interest rate that payday lenders can charge for these short-term loans, but there are also caps on the amount you can borrow. 

In each province and territory in Canada, the maximum payday loan amount you can take out is $1,500. Moreover, depending on the province you live in, there may be additional restrictions on how much you can borrow. For example, you can only borrow up to 30% of your net pay in Manitoba and New Brunswick. Similarly, you can only borrow up to 50% of your net pay in Ontario, BC, and Newfoundland and Labrador. 

That said, the most you can take out also depends on your lender. For instance, some payday lenders may only offer as much as $1,000, even though they’re allowed to offer more.  

ProvinceMaximum Borrowing Limits
Alberta, Saskatchewan, PEI, Nova ScotiaUp to $1,500
Manitoba, New Brunswick – Up to $1,500 (up to a maximum of 30% of your net income)
Ontario, BC, Newfoundland and Labrador– Up to $1,500 (up to a maximum of 50% of your net income)
QuebecUp to $1,500
Northwest Territories, Nunavut, YukonUp to $1,500

Can You “Roll Over” Your Payday Loan?

“Rolling over” a loan means adding any remaining payday loan balance into a second payday loan. That said, rollover loans are not permitted in many provinces across Canada. In these provinces, you can’t take out another payday loan before repaying the first payday loan in full. 

What’s The Risk Of Rolling Over Your Payday Loan? 

A rollover loan is risky because you’ll continue to increase the amount you owe in interest. Given the sky-high interest rates on payday loans, taking out additional payday loans to repay previous ones can put you at risk of getting stuck in a seemingly endless cycle of debt. 

If you’re unable to repay your payday loan, your lender should provide you with information about how to obtain financial advice for free. 

What’s The Maximum Payday Loan Penalty For A Returned Cheque Or Pre-Authorized Debit?

Payday lenders are generally repaid in two ways: through an automatic withdrawal from your bank account or through a post-dated cheque that you provide when you first take out the loan. If your account does not have enough funds to cover the amount owed or your cheque bounces, your lender may charge you a penalty fee.

Depending on where you live, penalty fees for a returned cheque or pre-authorized debit will range anywhere from $20 to $40. That said, some places in Canada have unregulated fees, such as in the territories. In this case, the penalty fees could be very high.

Do Payday Loans Have A Cooling Off Period?

A “cooling off” period is a time frame within which you may be able to cancel your loan without explanation or paying any fees. Generally speaking, a cooling-off period is around 1 to 2 days after you initially sign a loan contract. Many provinces have laws in place that protect this right. 

Before you take out a payday loan, make sure there is a cooling-off clause in the loan contract. 

When Do You Have To Repay Your Payday Loan? 

Payday loans are named as such because they are typically due for full repayment by the time you receive your next paycheque. This can be as little as 1 week to no longer than 62 days. 

If you can’t pay back your payday loan on time, you could be subject to additional interest charges and other fees, which will increase your overall debt. 

Payday Loan Requirements: Do Payday Lenders Require A License?

Payday lenders are regulated by provincial legislation. Each province establishes its own regulations about payday loans. Lenders must be licensed in the province they operate in. 

The territories don’t have specific rules on payday loans.

While obtaining an online loan is typically safe, it’s still important for Canadians to do their due diligence to make sure the lender they work with is legitimate. There are many payday lenders that are not properly licensed. It can be difficult to spot these lenders, particularly those that operate exclusively online. 

How To Check If Your Payday Lender Is Licensed?

To find out whether a payday lender has the required license to provide short-term loans, reach out to your provincial or territorial Consumer Affairs office. You can also see if the lender advertises their license on their website or storefront.

ProvincePayday Loan Rules
OntarioLearn More
British ColumbiaLearn More
AlbertaLearn More
New BrunswickLearn More
ManitobaLearn More
SaskatchewanLearn More
Nova ScotiaLearn More
Newfoundland and LabradorLearn More
Prince Edward IslandLearn More
QuebecLearn More

What Happens If You Can’t Pay Your Payday Loan On Time?

In the event you are unable to repay your payday loan by its due date, there are a number of repercussions that may follow.

  • The lender may charge you a fee for defaulting on your payment.
  • Your bank may charge you a fee for non-sufficient funds.
  • Interest and fees will continue to accumulate, increasing the amount you owe.
  • The lender may sell your loan to a collection agency, which may be reported to a credit bureau.
  • The lender or collections agency may try to sue you to regain payment.

Provincial laws dictate what payday lenders can do when trying to collect repayment on a payday loan.

Additional Laws Concerning Payday Loans

Over recent years, many provinces in Canada have passed some form of payday loan legislation. Depending on the province you live in, most payday lenders are required to adhere to at least some version of the following rules. In Canada, payday lenders must:

  • Have a business license from the government of the province they operate in.
  • Provide you with specific information about your loan, including:
    • The exact amount you’re borrowing
    • The length of your loan term
    • The real or total cost of your payday loan
  • Never ask for assignment of wages or automatic deduction from your paycheque.
  • Not try to contact you more than 3 times a week.
  • Not try to contact anyone but you to discuss any issues with your loan.

Bottom Line

Before you consider taking on any kind of debt, especially a payday loan, you need to have a repayment plan in place. The consequences of being unable to make your loan payments on time can negatively affect your finances and cause unnecessary debt. Unless you’re in immediate need of funds and can’t qualify for a traditional loan, you may want to consider payday loan alternatives to minimize your risk.

Payday Loan Laws FAQs

Who can I contact if I’m concerned about my rights with a payday lender?

If you’re concerned about a payday lender that you’re currently dealing with, get in contact with the consumer protection branch of your provincial government.

How many payday loans can you have at once?

For the most part, you can only take out one payday loan at a time. That means you must fully pay back your first one before applying for a second one. In some cases, you may even need to wait a few days before applying for a second payday loan.

How fast can I get a payday loan?

Payday loan approval is typically very quick. If you apply in-store, you should be able to get the money almost immediately. If you apply online, you could receive the funds shortly after applying, though in some cases, there may be a couple of hours delay.

Can I get a payday loan with bad credit?

Yes, payday lenders will not check your credit as part of the application process. If you have bad credit, this will not affect your approval chances for a payday loan.

Will taking out a payday loan affect my credit score?

Payday lenders typically do not check credit when approving an application. Furthermore, payday lenders do not report borrower activity to the credit bureaus. However, if you default and your lender sells your debt to a collection agency, this will be noted on your credit report and can pull your credit score down.

Lisa Rennie avatar on Loans Canada
Lisa Rennie

Lisa has been working as a personal finance writer for more than a decade, creating unique content that helps to educate Canadian consumers in the realms of real estate, mortgages, investing and financial health. For years, she held her real estate license in Toronto, Ontario before giving it up to pursue writing within this realm and related niches. Lisa is very serious about smart money management and helping others do the same.

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