📅 Last Updated: January 11, 2023
✏️ Written By Yu Mao
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Ontario residents are just as susceptible to debt problems as any other Canadian. If you’re among them, you might be thinking about payday loans and wondering if they’re the only available solution to your financial worries. Be very careful, because payday loans come with many downsides that could only worsen your financial situation in Ontario.

The Pros and Cons of Using Payday Loans

Payday loans might not be 100% bad for you. In fact, there are some rare instances where they may be useful, such as a serious expense that requires immediate action, or you’ve exhausted all your other options like credit cards. However, be sure that you’re 100% certain that your next paycheck will be large enough to cover the entire cost of your payday loan.

Additional pros and cons of using payday loans exist. Take a look at the following list to see if payday loans are the right option for you.

Pros:

  • No credit inquiry will be made. Even if you have terrible credit, all you need for approval is proof of your address, steady income, and chequing account.
  • Same day approval. For the most part, payday loans can be applied for and received within a few hours when you go to an in-store location. If you apply online, your approval might take one or two days.

Cons:

  • Scamming is a risk. The vast majority of people borrowing payday loans in Ontario have a financial emergency or don’t qualify with typical lenders in Ontario. Scam artists often use their desperation to sell them fake loans (mostly online) in an attempt to steal their personal and financial information. If you come across a “lender” that doesn’t have a solid reputation or legitimate credentials, stay away from them!
  • Unfavourable interest rates apply. While payday loans typically come in small amounts ($1,500 or less), they do have higher interest rates than any other credit product available.
  • Additional fees are added. Even if a payday loan lender in Ontario is legitimate, you can bet that they’ll find ways of charging you extra for everything they legally can. Additional fees can sometimes reach 15-35% of your loan amount.
  • Payday loans can quickly lead to bad debt when not handled responsibly. If you’re not absolutely certain that you’ll be able to pay your full balance by your next paycheck, it might be best to hold off. If you don’t make your payments on time, you’ll be charged a penalty fee. Since payday loans are so easy to get, many borrowers in Ontario end up relying on them too much, ultimately sending them into a pattern of bad debt that can take months, even years to recover from.

Can You Get A Payday Loan In Ontario?

Yes, payday loans are available in Ontario, provided you are eligible. Payday loans are a method of fast cash that is repaid when you receive your next paycheque or recurring income. Payday loans are the most expensive form of financing in Canada, and while they are easy to qualify for, they have extremely short terms and charge high fees, making them difficult to repay.

Can I Get A Payday Loan Online In Ontario?

Some payday lenders offer loans online, which can be applied for via the lender’s website. Payday lenders typically try to make the application process as straightforward and fast as possible. Many online payday loan applications can be completed in just a few minutes. 

Moreover, you’ll usually receive a response within 24 hours after submitting the application. If approved, you can collect the funds through direct deposit or e-Transfer.

Keep in mind that – like any payday loan – online loans adhere to the rules and regulations set out by the province. In some provinces like British Columbia and Québec, additional regulations may apply. 

Are You Eligible For A Payday Loan In Ontario?

There are some requirements that need to be met in order to be eligible for a payday loan in Ontario. Specifically:

  • Minimum age requirement of 18 or 19 years old (varies by province).
  • Must have a regular source of income.
  • Must have a chequing account that is active.

How To Calculate The Cost Of A Payday Loan In Ontario?

The cost of a payday loan will change depending on how much you’ve borrowed and which province you live in. In Ontario, payday lenders are able to charge up to $15 for every $100 they lend to you.

As an example, if you borrowed $500 and were charged $15 per $100 borrowed:

  • Your interest cost would be $15 x 5 = $75.
  • Your total repayment cost would be $500 + $75 = $575.

Note that the example above assumes a 14-day payday loan, for which the APR is 397.07%.

Why Is The APR Important? 

A valuable tool to know is the annual percentage rate (APR), which can give you an idea of how the cost of a payday loan holds up against alternative loans. Given how expensive payday loans can be, a useful comparison can help you make the best decision for your own individual and financial circumstances.

Can You Get A Payday Loan Online In Ontario Via e-Transfer?

E-transfers are a common form of funding for payday lenders. Following approval of your loan, your payday lender distributes the money via an e-Transfer. If you have an automatic deposit set-up, you can have your funds directly deposited into your bank account.

Can I Get A Cash Payday Loan In Ontario?

You can also get your payday loan in cash if your lender has a physical branch location. You’ll have to bring all the necessary documents and identification needed to apply for a payday loan to the in-person office. If approved, you should receive the money on the spot in cash. Similar to the e-Transfer option. Keep in mind that receiving cash may take longer in some instances due to factors like when a branch is open and its hours of operation. 

Can I Get A Payday Loan In Ontario Loaded Onto A Prepaid Credit Card?

Some payday lenders offer the option of transferring your loan to a prepaid credit card. This is often a useful option if you don’t have a bank account. You can pick up a prepaid credit card at a physical branch or have it mailed to you. However, this option depends on your payday provider so be sure to ask first. Once the loaned funds are loaded into your card, you can use it anywhere Mastercard or Visa is accepted.

Cracking the Payday Loan Cycle

While the payday loan cycle can be difficult to overcome for any individual in Ontario and the rest of Canada in general, there are ways of cracking it or avoiding it altogether. Here are some helpful solutions, many of which are offered at Loans Canada:

Using your credit cards.

If you qualify and have the finances to pay your bills on time, your credit cards can save you a lot of stress. While they can also cause bad debt when handled irresponsibly, at least your interest rate is likely to be lower, and you’ll have a minimum payment to help you avoid late penalties.

Borrowing from friends, family or coworkers.

Working up the nerve to ask the people you know for help can be hard. However, if it stops you from entering the payday loan cycle, give it a try.

Using your home equity.

If you own or are in the process of mortgaging a home, you may have built up enough equity to cover your various expenses or consolidate your debts. Be careful, however, because, under certain circumstances (ex: second mortgages), your home may act as collateral, possibly leading to a foreclosure if you miss too many payments.

Applying for a personal loan.

While you will generally need to have decent credit when applying through your bank, there are plenty of alternative and bad credit lenders in Ontario who will grant you one of these installment-based loans. In both cases, however, there’s still the potential for a better interest rate on a larger sum of money with cheaper fees and more reasonable payment terms.

Leveraging your car’s title.

If you fully own a car, you can apply for a “car title loan”, the amount of which will depend on the vehicle’s current market value. Keep in mind, however, that your car’s title will be used as collateral. If you default on too many payments, you could lose your vehicle, so once again, be certain you can afford them before offering up your car.

Debt consolidation loan.

While you may need a decent income and credit status, one of these loans can help you out of a real jam. If approved, you’ll use one large loan to pay off all your smaller ones, giving you one regular payment and interest rate to deal with, rather than several.

Debt management program.

If you’re applying for one of these initiatives, it means that your debt is becoming unmanageable. Here, you’ll work with a certified credit counsellor in Ontario, who will contact your lenders to negotiate a more reasonable payment plan. If the program is accepted, you may even get your payments reduced.

Consumer proposal.

If you’re in bad debt, but a DMP is off the table, you can also hire a licensed insolvency trustee, who will draw up an unbreakable legal contract for an established payment plan between you and your lenders. If approved, you’ll make payments through your trustee, who will pay your lenders for you, again with the possibility for a reduced balance.

Bankruptcy.

Declaring personal bankruptcy is another last resort alternative that could cause long-lasting damage to your credit and finances. However, it may be your only option if your debts are totally unmanageable. At least your debts will be cleared and all lenders/collection agencies will cease to pester you, allowing you to start over with a mostly clean slate.

Knowing Your Payday Loan Rights

According to the Payday Loans Act of 2008, payday loan lenders in Ontario must follow certain rules in keeping with the rights of their borrowers, such as:

  • They must be licensed by the Ontario Government
  • They cannot charge more than $15 per $100 you borrow. They also cannot charge you more than 50% of your net income per loan
  • They cannot offer you a “rollover” option (accept your application for another loan if your first is not paid in full, or use your second loan to pay your first)
  • They cannot accept or demand payment via an automatic deduction from your paycheck, also known as “assignment of wages”
  • They must have specific advertising (posters, flyers, etc.) detailing what their loans could cost you over time (including their annual percentage rate)
  • On the first page of any loan contract, they must include: specific details concerning the sum you’re borrowing, the length of your payment term, and the exact amount you’ll pay overall (including interest, administrative fees, etc.)

If you default (don’t honour your loan agreement) they cannot:

  • Contact your spouse, relatives, friends, colleagues, etc. at any time
  • Contact you more than 3 times a week or on holidays
  • Use aggressive or abusive pressure tactics to demand payment
  • Deposit a post-dated cheque or pre-authorized debit more than one time if it will lead to your bank charging you extra fees (overdraft, non-sufficient funds, etc.)

Frequently Asked Questions

Can I get an extension on repaying my payday loan?

Yes. In fact, payday lenders are required to offer you an extended payment plan if you take out three loans within 63 days. The loan will then become a kind of open-end instalment loan. You’ll be able to spread out your payments in equal instalments according to how frequently you are paid. You will also be allowed to make prepayments without penalty. Other conditions apply. Consult with your provider for more information.

What is the legal limit for payday loan interest in Ontario?

For loans in Canada, the annual percentage rate (APR) limit is 60%. However, payday loans have their own special limits that vary from province to province. In Ontario, this limit is $15 for every $100 borrowed. For a standard two-week period, this means an APR of almost 400%. The reason payday loans can have such high rates is because they are usually meant to be repaid within 1 to 2 paychecks, or 2 to 8 weeks. With such a quick turnaround, normal interest rates just wouldn’t be commercially viable for payday lenders. These types of loans are also typically taken out by higher-risk borrowers. Lenders will always charge more interest when there is a higher risk involved.

I’m unemployed. Can I still get a payday loan in Ontario?

It’s possible. There are providers that consider income from non-employment sources. For example, if you receive income support from the government, some payday lenders will work with you to get approved. While it may vary from provider to provider, alternative sources of income can include the Canadian Pension Plan (CPP), Employment Insurance (EI), disability assistance, and private pensions.

Loans Canada, Your Go-To Source of Payday Loan Relief

If you’re thinking about using a payday loan in Ontario to finance something important to you, or if you’ve found yourself trapped in a payday loan cycle, reach out to us today. We’ll put you in contact with better sources of better credit products. Simply apply below!

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