Payday loans in Canada
Many Canadians rely on payday loans when they find themselves short of cash in the middle of the month, or need some extra money to tide them over until they receive their pay cheques. Unfortunately, a payday loan is the most expensive way to borrow money. It can be a slippery slope as well, putting you further in debt if you rely on them frequently.
The cost of a payday loan varies from company to company, but fees charged typically include interest, initial or one-time set up fees, rollover fees, processing fees, early or late repayment fees, convenience charges, verification fees, broker fees and collection fees. Payday loan companies typically charge a rate of interest that works out to slightly less than 60 percent each year. However, when all of the added fees are combined, the total cost of borrowing is actually much higher.
Estimate interest rates of a payday loan compared to other financing options:
Payday loans in Canada are limited by law, with any rate of interest charged above 60 percent per annum considered criminal according to the Criminal Code of Canada. In addition, the provinces of British Columbia and Saskatchewan have imposed specific regulations on payday loans, including lower interest rate caps.
As long as you have a job, an active bank account and a permanent address, one of the benefits of a payday loan is that you do not have to seek credit approval. Once you sign the loan agreement, you must provide a post-dated cheque (for your next payday) to cover the amount of all fees and service charges.
Signing the payday loan agreement signifies that you understand all of the terms and conditions of the payday loan, and that you understand how much the loan will cost you. Payday loans are meant as a short-term solution since the amount you borrow is usually limited to about 30 percent of your take-home pay. This loan comes with the promise that you will pay it back when you receive your next pay cheque.
Avoid payday loan rollovers
A payday loan rollover is when a company extends an outstanding payday loan for a fee, or grants a new payday loan to pay off an existing one. Rollover loans can keep you in debt at a high interest rate.
Payday loan company regulations
The Canadian Payday Loan Association represents 22 companies with more than 850 retail outlets across the country. The association’s Code of Best Business Practices are guidelines to which its members must adhere in order to remain a member of the association. However, this is unfortunately a voluntary tool and many payday loan outlets are not members of the Canadian Payday Loan Association.
If you are frequently relying on payday loans to make it to your next pay cheque, or you have been caught in a cycle of payday loan rollovers,
contact BDO to find out how we can help you take control of your debt.