Payday loans in Canada are quickly becoming a helpful service for individuals and families in need. With the inconsistency of work and a lapse in benefits for the everyday worker, payday loans can help make ends meet. With that said, it’s essential to know what’s involved with these loans before signing on the dotted line.

What To Know Before Getting a Payday Loan

Even if you’ve done plenty of research into payday loans , like looking into instant payday loans Canada, most information comes from lenders in the United States. As a resident of Canada, there are specifics you should know to ensure you are getting your money’s worth.

Things To Ask Your Lender

Let’s get into the details to help ensure your payday loans Vancouver are safe and reputable.

1. Are you licensed?

The first thing that any client needs to ask before signing up for payday loans in Canada is whether their lender is licensed. Unlicensed companies are not regulated by Consumer Services and other regulating agencies. Without this coverage, there’s a good chance you could end up getting scammed.

Any reputable payday loan service will be able to show proof of licensing from your provincial government. For example, payday loans Vancouver will present a certificate from the British Columbia Ministry of Government and Consumer Services.

In most cases, this documentation will be displayed proudly in the offices of the company you are working with. If you’re looking for online lenders, this is when you’ll need to do plenty of research.

A top recommendation with online vendors, such as those in the FinTech sector, is to visit your province’s Consumer Protection Branch website. You can search whether specific lenders have licenses registered with the government.

Always remember that if it’s too challenging to find legitimate information about a payday loan lender’s license, it could be a scam. Either the company will collect your money through illegal means, or they might not pay you any money and steal your information.

2. What is the cost of borrowing with my loan?

Another essential thing to ask with payday loans in Canada is how much the loan will cost you. Unfortunately, Canada payday loans aren’t free money. Much like any other loan, they will have to be paid back.

There are two main facets to your agreement that you’ll want to pay close attention to: fees and interest.

Fees

Fees are widespread with instant payday loans Canada and other payday loans. Typically, you will pay these fees upon loan repayment, depending on the amount you are borrowing from a lender.

In Canada, there’s a law that says payday lenders can charge up to $15 per $100 loaned to customers. This is where fees and interest get tricky, as this fee is often confused for interest when the two are incredibly different.

Your payday loan lender can charge your fees and interest on the money you owe. So, for example, you may owe $15 per $100 borrowed, plus whatever percentage your interest is.

Interest

The second thing to keep an eye out for with payday loans Vancouver is interest. Like a typical loan, Canada payday loans will always come with interest, as this is how the lender makes money. Depending on the lender you decide to work with, your interest can vary but hover around 2.5% per month.

Another tricky part of interest with payday loans is that it often goes up if your loan isn’t repaid within a certain period. For example, your interest rates will soar if you have a 62-day repayment period and do not pay the whole loan off. Over time, this can make it incredibly challenging to pay off the initial sum you had borrowed.

3. How can I pay my loan back?

Once it’s time to begin repaying your instant payday loans Canada, you need to know your options. Most lenders will have a couple of repayment options to help make the process simpler for you. You will likely find post-dated cheques or pre-authorized debit as the two preferential options.

Preauthorized debit can be beneficial if you have a regular source of income coming into your account. You simply agree to have a certain amount of money withdrawn each month to begin paying off your loan automatically.

With post-dated cheques, a set amount of money is withdrawn each month on a day of your choosing. However, post-dated cheques can be challenging because they can come with extra fees if your payments bounce. In most instances, lenders will charge you a fee (approximately $25), as will your bank.

4. Can I pay my loan off early?

In the best possible circumstances, you’ll want to ensure you can pay off your payday loans in Canada as quickly as possible. This process can help ensure you are not charged extra fees and interest over time. With that said, not all lenders allow their clients to pay their loans off early without penalty.

Fortunately, in Canada, you can’t be charged if you pay your loan off early through a penalty. However, your lender will still require you to pay any fees you are responsible for.

To ensure you’re adequately covered after repayment, ask for a receipt to prove your full repayment. It can also be beneficial to request any preauthorized debit forms you signed and provided to the lender. As an extra step, consider getting any post-dated cheques returned as well.

5. What are the penalties for late payments?

Late payments can happen no matter how diligent you might be with your finances. Knowing what penalties you’ll be responsible for with late payments is essential. Every lender will have a list of rules, regulations, and penalties you should review before signing any papers.

There are a few common steps payday loans in Canada can take to handle late payments, including:

  • Adding late fees to your loan is the most common method of recompense for late payments. If you cannot pay the agreed-upon amount by your payment date, an interest of up to 2.5% can be added per month.
  • Another common penalty you might experience with late repayment is sending your loan to a collection agency. This step is usually taken if a client has lapsed on a few loan repayments and the lender is unsuccessful in collecting payment. In this instance, the collection agency will try to get the money. If unsuccessful, your credit score will drop drastically.
  • Small claims court is often the most severe and last resort for payday loans in Canada. Clients who refuse to repay their loan can be taken to court for the lenders to claim your money and property. If your lender wins, they can also garnish your wages until the loan is paid.

6. Do I need a payday loan?

The last thing you should ask is whether a payday loan is essential or not. Although they are designed to help individuals who require financial assistance, they might not be suitable for you. A better alternative could be to discuss your finances with a debt counselor .

Debt counselors are trained professionals who will look at your assets, liabilities, and income. They will help you generate a plan to manage your finances outside of requiring payday loans. Alternatively, consider looking into traditional loans from your bank rather than payday loans in Canada.

Frequently Asked Questions About Payday Loans in Canada

1. Are payday loans legal in Canada?

Payday loans are legal in Canada, but lenders have strict regulations they must adhere to. For example, they can only charge certain interest rates per amount borrowed. Also, borrowers are awarded protections when working with a legitimate payday loan lender.

2. Can payday loans garnish wages in Canada?

If clients regularly lapse on their payday loan repayments, their wages can be garnished. However, the company cannot garnish your wages without taking you to court first. If they win in small claims court, the court can then grant your wages to be garnished for repayment.

3. How do payday loans work in Canada?

Payday loans are relatively simple to get your hands on, especially in Canada. You have to find a reputable lender, decide how much you need to borrow, and sign an agreement.

With that said, it would be best to review the fine print in your agreement before signing. You’ll want to ensure you have a reasonable repayment term and a repayment amount that fits your budget.

Always confirm any extra or hidden fees and the interest rate on your loan. With this information readily available, you should be able to easily make your repayments.

4. Can payday loans take you to court in Canada?

As with any loan you sign up for, you can be taken to court in Canada if you lapse on your payments. Payday loans in Canada typically take clients to court if they miss a few payments in a row. You must make all of your payments on time to avoid significant penalties.

The Takeaway

Before working with a loan service, it’s important to research payday loans in Canada to guarantee you’re adequately prepared when you sign up. If you know what to expect and who you’re dealing with, you can steer clear of scammers out to get the uninformed.

More than anything, make sure that the company you’re thinking of doing business with holds a license. Lastly, it would be best to contact your territorial or provincial consumer protection office to learn about your area’s payday lending rules.

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