Payday loans
This resource explains the legal rights of people who borrow money from a payday loan company, including limits on fees and interest, information that the lender must provide, and when the borrower can cancel the loan. It also suggests places to get help if the lender does not follow the law.
What is a payday loan?
A payday loan lets you borrow money from a lender that you repay when you get your next paycheque or social assistance payment. Payday loans have much higher interest rates and fees than loans from banks, credit unions, or credit cards.
How much can I get?
A payday loan cannot be more than half of your monthly income. In Ontario, most payday loans are for $1,500. If you borrow more than $1,500, then the maximum amount of interest that a lender can charge you is lower.
The rules for loans that are more than $1,500 are not covered in this resource.
How does a payday loan work?
Most payday loans must be repaid within 14 to 28 days. If your loan is longer than 62 days different rules apply. Those rules are not covered in this resource.
When you apply for a loan, lenders can ask for:
- proof you have regular income from a job, a pension, OW, or ODSP
- proof of your address, for example, a utility bill
- your bank account details
They cannot ask for:
- collateral, which is something valuable you give them that they keep if you cannot repay the loan
- a guarantor, who is a person who must repay the loan if you do not
A lender can ask your employer to confirm details of your employment, but cannot contact anyone else.
Lenders cannot give you another loan until you have paid off your first loan.
How much can they charge me?
A lender can charge you $14 in fees for every $100 they lend you. These fees are much more expensive than the interest you would pay on a credit card.
What should be in my loan agreement?
You must get a printed copy of the loan agreement. It must:
- be printed in large enough type that most people can read it
- tell you the exact amount you must repay
- explain that you can cancel the loan within 2 days of signing the agreement
- show how much the loan will cost and when you have to repay it
- show how much interest you will be charged if you do not repay the loan on time
Can I cancel my loan agreement?
Once you sign the agreement, you have 2 days to cancel if you change your mind. You do not have to give a reason. If the lender is closed one of those days, you get an extra day to cancel. This is called the cooling-off period.
You can cancel any time if the lender does not give you the money, does not give you a copy of the agreement, or if they break the rules.
When you cancel the agreement, you have to return the money you borrowed but you do not have to pay any fees.
How do I repay the loan?
Usually, you repay the loan with a post-dated cheque or a pre-authorized debit form. A lender cannot take money directly from your paycheque.
Can I make a payment plan?
Usually, you must pay the loan back all at once. But if you have taken more than 2 loans from the same lender within 63 days, the lender must offer you an “extended payment plan”. This gives you more time to pay back the loan.
What if I cannot repay the loan?
If you cannot repay the loan on time, the lender can:
- charge you 2.5% interest for every month you do not pay
- send your file to a collection agency
- sue you in court
If the lender tries to withdraw money from your account or cash your cheque and you do not have enough money, they can charge you up to $25 extra. They can only charge this fee once, no matter how many times your cheques bounce.
If you do not pay on time the lender can contact you by phone or in person Monday to Saturday from 7 a.m. to 9 p.m. and on Sundays from 1 p.m. to 5 p.m. They cannot contact you on holidays. And except for regular mail, lenders cannot contact you more than 3 times a week.
Lenders are not allowed to threaten, bully or harass you.
Lenders cannot tell other people that you owe them money. For example, they cannot contact your friends or family, or post about your loan on social media.
If you have problems with a lender, you can report them.
Can I get help paying my debts?
Before you take a payday loan, think about other ways to solve your money problems. For example, you can talk to a nonprofit credit counsellor to make a plan to pay your debts and expenses. Or, if you need money for a short period of time, using a credit card or loan from a bank or credit union can cost less than a payday loan.
You can find a non-profit credit counselling service near you by visiting Credit Counselling Canada.
Can I get legal help?
For free information and help with a lender you can call Pro Bono Ontario at 1-855-255-7256. If you cannot afford a lawyer, visit JusticeNet.
Some community legal aid clinics help with consumer law issues like payday loans. For a list of local clinics call Legal Aid Ontario at 1-800-668-8258.