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Payday loans are short-term loans of up to $1,500 provided in exchange for a post-dated paycheque or other pre-authorized debit that the lender uses for future repayment of the loan, plus any interest and fees.
If the payday loan is not repaid on time, it can result in more interest and fees. Payday loans must be repaid within 62 days.
Getting a payday loan will cost you money in fees. These fees will be subtracted from your next paycheque, meaning you will get less money later. Some people that start using payday loans to make ends meet can end up in a cycle of borrowing that is difficult to escape.
Payday lenders can charge you $15 for every $100 borrowed. For example, if you borrow $500 for a payday loan, you can be charged up to $75 in interest and fees.
This may not seem like a lot of money, but the short period of a payday loan means they have much higher interest charges than other types of loans. A payday loan for a bi-weekly paycheque calculates to have an annual interest rate of nearly 400 percent.
Let's calculate what a payday loan could cost you. Say that:
- The amount of your next paycheque will be $1,000
- You'd like to take out a payday loan for $300
- The fee to borrow the loan is $45
The total cost to repay the loan is $345. That means the amount you will receive from your next paycheque will be $655.
If you choose to get a payday loan, carefully review the terms and conditions you will be asked to accept. When you agree to them, you are entering into what is known as a credit agreement. There are certain things to look for in the credit agreement.
There are additional costs and risks if you don’t repay a payday loan on time. The payday lender can:
- Charge you additional interest at a rate of 30 percent per annum on the outstanding amount owed
- Charge you a one-time fee of $20 for a dishonoured cheque or pre-authorized debit
- Assign your unpaid loan to a collection agency
If a payday lender is unable to withdraw what you owe from your bank or credit union, you may also be charged a fee for non-sufficient funds (NSF) or an overdraft fee (unless you have an account with overdraft protection). This fee typically is around $50 for each NSF fee.
Payday lenders are regulated in B.C., meaning any company that offers payday loans must be licensed and follow laws set by the provincial government. You can check to see if a company is licensed with this licence lookup tool. The business must also display the licence wherever it offers payday loans, whether online or in-person.
A person with a payday loan has the right to:
- Review what the payday loan will cost, in clear and understandable language, in a credit agreement
- Cancel and repay the payday loan, without penalty, within two full business days after getting the loan
- Repay any amount of the payday loan early, before it is due, without penalty
- Repay the payday loan over two or three pay periods if it is the borrower’s third payday loan from the lender in the last two months
A company that offers payday loans in B.C. cannot:
- Charge a fee of more than $15 per $100 borrowed. A company’s fees must be publicly displayed wherever a payday loan is offered
- Issue a borrower more than one payday loan at a time
- Give you a payday loan for more than 50 percent of the amount of your paycheque
- Roll over an existing payday loan into a new one with charges
- Require or request that you buy insurance or insure the payday loan
Payday lenders are regulated and must follow rules under B.C. law. If you have questions or concerns with a payday loan or lender, contact Consumer Protection BC.