Canada payday lending is different than in most other countries where these types of loans are offered. The main reason is that the country has some very tough payday lending regulations. While some other countries have limited interest that payday lenders can charge, they have allowed fees to continue resulting in what still amounts to at least 200% APR and, in most cases, the rate is much higher.
In Canada, however, the maximum rate allowed is 23% and that includes interest and all fees. This new limitation went into effect late in 2009. Other strict regulations have also been placed on the Canada payday lending industry. While some locations allow borrowers to have several payday loans at one time, Canada only allows each borrower to have ONE loan at a time. This restriction was put in place because some consumers ended up owing far more than what they made each payday, creating a cycle of financial hardship that was impossible to correct.
For the same reason, Canada payday lenders are only allowed to loan 50% of a borrower’s income. This means that no borrower will be in the position of having to hand over their entire check come payday.
These changes in payday lending legislation were not popular with lenders, but consumer groups were thrilled at the changes. Many felt the old, more lax regulations did not do enough to protect consumers from practices that some felt were predatory.
Now that the interest rates and fees are the same across the board, finding the best payday loans in Canada is more about customer service and convenience. Below are some tips for getting the best.
Use the Same Lender
Since the interest rates are the same, you do not have to wonder if there is a better deal on a payday loan down the street. That means that you can build a relationship with one payday lender. Of course, the goal is not to use these loans very often, but when you do it’s often best to stick to one lender.
In general, you will be able to get your loan processed more quickly than if you were a first time customer. Also, if you have a good relationship with a certain lender, they are more likely to let you come in a day or two late when a payment is due should something come up.
Pay Loans Back Early
Even though interest rates for UK payday lending are much lower than in some other places, it is always beneficial to pay the loans back early. You will save money on how much you will have to pay in interest and even if it is just a few dollars, that is a few more dollars in your pocket.
Don’t Rollover Loans
Another key to making the best use of payday loans is to resist the urge to take out another loan shortly after one has been paid back. This creates a cycle of borrowing that ends up costing the borrower money and time and only creates more financial hardship.
Instead, use payday loans sparingly and only as a last resort. Some other options that could help you meet your short term financial difficulties include using an overdraft line of credit from your bank or taking a cash advance on a credit card.
Payback Options
Find a loan that allows you to come in and pay back the money that is owed rather than a lender that wants to access your bank account directly. Sure, most of the time there will be no significant problems with a lender directly debiting your account, but there is always a chance that there could be issues.
Rather than dealing with the headache that can result from trying to fix an incorrect, early or double charged debit, just avoid this possibility entirely.
Some lenders require that the loan be paid back via direct debit, but not all do. Shop around until you find a lender that does not have this requirement.
Again, finding a good deal on a payday loan in Canada isn’t the issue. Instead, you can focus on finding a lender that is convenient and where your business is valued.
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Payday lending in Canada is different than in most other countries where such loans are available. While many locations charge extremely high interest rates, Canada’s new Payday Lending
Regulation has limited the amount of interest and fees that can be charged.
While the new regulations, which took effect in November of 2009, make the loans much more reasonable, many still have questions about the loans. Below are three of most commonly asked questions about payday lending in Canada.
How Much Can I Borrow?
How much you will be able to borrow depends on how much you make and how often you are paid. Since the new regulations took effect, the amount that one can borrow is more limited than it was in the past.
Before Canada’s Payday Lending Regulation, each lender could make a decision about how much to loan each customer. In some cases, businesses were writing loans that were almost as much as the borrower earned each payday. This resulted in the borrower having to hand over almost their entire check to pay back the loan.
With the new regulations, lenders are only allowed to loan 50% of the borrower’s take home pay. For example, if you bring home $500, you could take out a payday loan for a maximum of $250.
Also, in the past it was possible to take out more than one loan at a time. Some borrowers would visit different lenders. This would allow them to borrow even more each payday. Now, consumers can only have one payday loan at a time and all lenders are required to be part of a database that tracks the loans to make sure that a borrower does not have a loan with another payday lender.
What is the Interest Rate?
One of the biggest differences between payday loans in Canada and those in other places is that the interest rates are way below the industry standard. In most places, payday loans carry interest rates that range from 200% to over 1300% APR. Canada’s lenders also had such high interest rates, but the Payday Lending Regulation changed that.
Lenders in Canada used to try to skirt the law that said lenders could charge no more than 60% interest by calling some of the charges “fees” rather than “interest”. In a class action suit against a Canadian payday lender, a judge ruled that fees such as deferment, application and processing fees were, in fact, interest.
Under the new law, Canada’s payday lenders can charge no more than 23% interest. That includes regular interest and all fees.
This makes payday loans in Canada a reasonable option for dealing with short term financial issues. The interest rate is low enough as to be somewhat competitive with other loan options, but it is still important to only use payday loans when absolutely necessary.
What are the Downsides?
While the list of downsides for payday loans is usually quite long, the new laws have changed Canada’s payday loans so much in favor of the consumer that there are far fewer negatives to these loans.
The new laws were intended to protect consumers from becoming bound by these loans and they are quite effective at doing just that.
One potential negative is that some may continue to borrow over and over again rather than paying the loan back once and for all. Since the loan is due in full on payday, it is quite tempting to continue to renew the loan rather than trying to figure out how to restructure one’s budget in order to pay the loan off and not take out another loan.
Payday loans in Canada are a quick and easy answer to unexpected financial needs. If your car breaks down or you need gas and groceries and payday is a week away, these loans are a good way to bridge the gap. With the newly competitive interest rates, they are a good option in such situations.
Just take care to only use these loans once in a while when you really can’t wait until payday. If you use these loans wisely, you will be able to have a place to turn for short term financial help without becoming bound a cycle of borrowing and repaying.
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Consumer groups rejoice. Canada recently enacted some of the toughest payday legislation of any country where such loans are offered. While the payday lending industry in Canada is less than thrilled, those who have worked to protect consumers from the practices of payday lenders are surely very happy with the new laws that took effect in November of 2009.
Below is a description of some key points of the new rules, called the Payday Loans Regulations, as well as how each point can help to protect consumers.
Limit on Interest
While some locations charge interest rates as high as 1300% on payday loans, Canada has put a strict cap of 23% on the loans in their country. While some other places have similar rules, they often exclude the fees. This exclusion allows lenders to tack on hundreds of dollars of fees, making the effective interest being charged well over the stated allowed maximum.
This is not the case in Canada. Canada’s 23% maximum includes all fees. This came on the heels of a case in which a Canadian court ruled against a payday lender whose fees, said the court, needed to be included when figuring out the interest rate.
A consumer is now able to get a payday loan with an actual interest rate of only 23%, making it a decent choice when trying to meet short term financial emergencies.
Limit on the Number of Loans
Another way that many Canadian payday loan borrowers got into trouble was by taking out several payday loans at one time. While each lender was verifying income information, because borrowers were using more than one lender, they often wound up owing more than they made.
This, of course, made it impossible for the borrower to be able to pay back the loans and resulted in a never ending cycle of borrowing and rolling over their payday loans.
With the new legislation, borrowers may have only one payday loan at a time.
Limit on the Amount Lent
Another key point of the Payday Loans Regulations is that lenders are only allowed to lend 50% of the borrower’s take home pay. This is tight, even among other countries that place a limit on the amount that can be lent.
In the past, lenders would allow up to 80% of a borrowers take home pay to be borrowed. There was no regulation by Canada, so each lender could set limits. For many borrowers, this meant that when payday came around, they were handing over their entire check to the payday lending business.
Limit to Direct Bank Account Access
Another important part of the Payday Loans Regulations is that payday lenders are now very limited on having direct access to a borrowers bank accounts. In the past, a borrower would often have to sign something giving permission for the lender to debit their account. In many situations, this resulted in further financial hardship for the borrower.
Now, lenders are not allowed to demand such full access as part of the loan process providing additional protection for the borrowers.
Loan Cancellation Option
The option to cancel the loan allows borrowers to change their mind about the loan within 24 hours. If they return the money within that time, they do not have to pay any fees or interest.
Limit Access to Employers
In the past, if a borrower was late paying back a payday loan, some lenders would directly contact the borrower’s employer. In some cases, they would call every day until the loan was paid back, resulting in an uncomfortable situation at the borrower’s place of employment.
Under the Payday Loans Regulations, lenders are not allowed to directly contact the employer except as a measure of last resort.
These new regulations were designed with the protection of the consumer in mind. Many think that the industry should not be so tightly regulated and that is should be up to borrowers to read the fine print and to only take out loans that they can afford to pay back.
Of course, the payday lending industry would agree with those sentiments, but Canada lawmakers have decided to place the protection of consumers at a higher place that the profits of the Canada payday lending industry.
