Payday loans are a very expensive way to borrow money.
Be aware of the total annualized borrowing rate (ABR) of a loan before you agree to take the loan. The ABR calculation should include all of the lender’s fees or charges connected to the loan – interest charges and application, set up, administration or other fees.
Payday lenders are required to post large signs in each location that set out the cost per hundred dollars borrowed and other important details of the costs associated with loans offered by that lender. The signs allow borrowers to shop around and find the least expensive option without having to speak to the lenders’ employees.
You may want to consider other less expensive options to borrow money, which can include:
- Consider a lower cost short term loan from a local Credit Union or a line of credit from your bank. Often a borrower can access short term funds at rates far closer to the prime lending rate. Your bank or Credit Union may also offer credit counseling without charge.
- Your employer may be willing to provide an advance or partial advance on your pay.
- Negotiating a payment plan or deferral with your other creditors. It may be in a creditor's best interest to agree to a payment plan with you, even if it means smaller payments over an extended time period.
- A cash advance on your credit card may be much cheaper than using a payday loan. Credit card APR is typically far lower than the ABR used by most payday lenders.
Don’t confuse a lender’s fee per hundred dollars borrowed with the ABR percentage!
Even a high rate credit card’s APR will likely be significantly cheaper that the ABR calculated based on a $23 fee to borrow $100 for a payday loan term. For example, the ABR to borrow $100 at a $23 fee for one week is 1199% per annum, which is significantly higher than a typical 28% per annum credit card.
Before You Enter into a Payday Loan Agreement
The lender must provide you with certain information, in writing, before you enter into a payday loan agreement. This is required by law under The Payday Loans Act.
The lender’s written disclosure must:
- include an understandable explanation of all amounts, fees, rates, penalties or other charges that may be payable by the borrower;
- include or be accompanied by contact information for Credit Counselling Canada;
- provide notice of the borrower’s right to cancel the payday loan, at any time before the end of the following business day, without reason or cost.
The lender must provide a form that can be used to cancel the loan.
If, after reading a lender's disclosure statement, you decide you do not want the loan, you do not have to proceed with it.