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 as well as any payday loan requirements in your province.
What Is A Payday Loan?
Payday loans are a specific type of loan provided by a payday lender. Payday loans are typically small, ranging between $100 to $1,500. They typically must be paid back by your next payday which can vary between 7 days and a month.
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 or not borrowers can take out new payday loans to pay off existing ones (loan roll over).
The exact rules depend on the different provinces and territories, which have their own regulations for payday loans.
What’s The Maximum Payday Loan Interest Rates 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. That said, interest rates on payday loans are extremely high and can be as much as 500% to 600%.
Maximum Cost Of A $100 Payday Loan By Province
| Province | Max cost per $100 borrowed | Max Penalty for Returned Cheque | Cooling Off Period | Loan Rollover or Extension |
| Ontario | $15 | n/a | 2 business days | Not allowed |
| British Columbia | $15 | $20 | 2 business days | Not allowed |
| Alberta | $15 | $25 | 2 business days | Not allowed |
| New Brunswick | $15 | $20 | 48 hours (not including Sundays and holidays) | Not allowed |
| Manitoba | $17 | $20 | 48 hours (not including Sundays and holidays) | Allowed |
| Saskatchewan | $17 | $25 | Next business day | Not allowed |
| Nova Scotia | $15 | $40 (default penalty) | Next business day (or 2 days for online payday lenders) | Not allowed |
| Newfoundland and Labrador | $14 | $20 | 2 business days | Allowed |
| Prince Edward Island | $15 | n/a | 2 business days | Allowed |
| Quebec | 35% AIR | n/a | 10 days | Not allowed |
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 $50. That said, some places in Canada have unregulated fees, such as in the territories. In this case, the penalty fees could be very high.
Max Fee A Lender Can Charge
| Province | Max Penalty for Returned Cheque |
| Ontario | n/a |
| British Columbia | $20 |
| Alberta | $25 |
| New Brunswick | $20 |
| Manitoba | $20 |
| Saskatchewan | $25 |
| Nova Scotia | $40 (default penalty) |
| Newfoundland and Labrador | $20 |
| Prince Edward Island | n/a |
| Quebec | n/a |
If you feel that you may not have enough money in your account by the time your loan is due for full repayment, contact the lender before the due date to see what other arrangements may be made.
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.
| Province | Cooling Off Period |
| Ontario | 2 business days |
| British Columbia | 2 business days |
| Alberta | 2 business days |
| New Brunswick | 48 hours (not including Sundays and holidays) |
| Manitoba | 48 hours (not including Sundays and holidays) |
| Saskatchewan | Next business day |
| Nova Scotia | Next business day (or 2 days for online payday lenders) |
| Newfoundland and Labrador | 2 business days |
| Prince Edward Island | 2 business days |
| Quebec | 10 days |
Can You “Roll Over” Your Payday Loan?
“Rolling over” a loan means rolling any remaining payday loan balance into a second payday loan. That said, rollover loans are not permitted in many provinces across Canada, including British Columbia, Alberta, Saskatchewan, Ontario, New Brunswick, and Nova Scotia.
In these provinces, you can’t take out another payday loan before repaying the first payday loan in full. However, if you live in PEI, Manitoba and Newfoundland and Labrador, you can roll over your loan.
Should You Rollover 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.
When Do You Have To Repay Your Payday Loan?
Payday loans are named as such because they are 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 in all 10 provinces. These lenders must be licensed in the province they operate in.
Federal regulations govern payday lenders in the 3 territories.
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 or not a payday lender has the required license to provide short-term loans, reach out to your provincial or territorial Consumer Affairs office.
How Much Can You Borrow 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. 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.
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, British Columbia and Newfoundland and Labrador.
Are Payday Loans Laws in Quebec Different?
Quebec’s regulations surrounding payday loans are similar to other provinces. For example, lenders can’t offer loan amounts of more than $1,500 and are not allowed to roll over your loan into a new one. Also, you must repay the loan no later than 62 days after taking out the loan. These rules are the same for most other provinces.
In Quebec, it is the Consumer Protection Act that governs payday loans. The maximum that payday lenders can charge for payday loans in Quebec is significantly lower than in the rest of the country. For this province, lenders cannot exceed an annual interest rate (AIR) of 35%. This is why payday loans in Quebec are not as popular as in other provinces.
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 will charge you a fee for defaulting on your payment.
- Your bank may charge you a fee for nonsufficient 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.
- Defaulting on your payment may lead to the lender garnishing your wages.
Additional Laws Concerning Payday Loans
The majority of provinces in Canada have in recent years passed some form of payday loan legislation. Again this depends on the province you live in but most payday lenders are required to adhere to at least some version of the following rules:
- 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.
- Try to contact you more than 3 times a week.
- A payday lender cannot 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.
