Payday loan: what is it, what are the risks, and what are the other options?


The payday loan allows you to borrow money against a promise to repay it when you receive your next pay or your next regular income.

In Ontario, you cannot get a payday loan of over $ 1,500.

Most lenders do not do a credit check before granting a payday loan. Typically, they ask the person:

  • to prove that she has been employed for three months;
  • provide them with proof of address, such as a utility bill;
  • provide them with information about their checking account.

The payback period for a payday loan is short: it normally varies from 14 to 28 days. The longest time you can get is 62 days, for about two months.

When a payday lender agrees to lend you money, you must sign a loan agreement. By doing so, you agree to repay the loan, as well as the interest and fees charged by the lender.

Payday lenders apply a rate of interest and the costs much higher than banks, credit unions or issuers of credit cards. If you need money for a short period, be aware that it would cost you less to use your credit card.

Until your payday loan is paid off, you cannot get another one. 

Usually, payday loans have to be repaid in one go, at the end of the loan term. But if the loan you are applying for is your third or more in 63 days, the lender should offer you an extended payment plan.

You must know how payday loans work before you sign a loan agreement. For example, you should know clearly:

  • what is the amount you borrow;
  • what is the amount you have to repay;
  • how many days you have to repay this amount;
  • how you should repay this amount;
  • if you can terminate your loan agreement.

Before applying for a payday loan, think about other possible solutions. For example, you could consult a credit counsellor from a non-profit agency. This could help you establish a reimbursement plan for your debts