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Canadian Payday Loans – A Basic Primer

Short-term Payday Loan One of the shortest loans you can secure is the payday loan, noted by a payoff period of about two weeks and an interest rate that, to most conservative borrowers, is next to exorbitant. However, that being said, a payday loan can also get you out of a financial jam – a car breakdown, a plumbing problem, an electrical repair . . . especially if you are between pay days and cannot afford the repair. General Loan Terms Because payday loans are so short-term, you usually cannot obtain one for any more than $1,500. Most payday loan borrowers then take out a loan, on average, of $300 or less, with the loan designed not to go beyond a 62-day period. Securing the Loan at a Payday Lender Location In order to secure the loan, a borrower typically must give the lender a check that is postdated until his next payday, which includes the amount of the loan plus the associated fees. Alternatively, he might opt to have a pre-authorized debit taken out of his bank account. Maximum Borrowed Amount Generally, a payday loan lender cannot charge any more than $25 for each $100 that is borrowed as long as the loan amount is paid by the due date. So, if a loan is paid back on time, the designated amount is referred to as the total cost of borrowing. Charges and Fees The total cost of borrowing is comprised of the loan amount along with such items as the interest  being charged, administrative fees, check cashing charges, pre-authorized debit fees, cash card transaction fees, and/or the fees associated with loading a cash card. In other words, the total cost of borrowing references what it will cost you to borrow the money.
Canadian Payday Loans – A Basic Primer

Canadian Payday Loans – A Basic Primer

The Cost of Default The total cost borrowed, if you live, say, in Nova Scotia, cannot be more than $50 on a loan of $200 ($25 for each $100 borrowed). So, the most you would pay on a payday loan is $250 – that is, if you repay the financing by the due date. If you go past the due date, you will incur interest charges on the amount that is still owed. The interest rate, as specified in the payday loan agreement, can be as much as 60%. You may also be assessed a penalty for default, which can run as much as $40.

If you go into payday loan store to obtain the funding, the lender must display some kind of notification of what it will cost the borrower to take out a loan. The information may be represented as follows

  • $200 payday loan for a period of 14 days
  • Principal Amount: $200
  • Total Cost of Borrowing = $50
  • Amount to be Repaid: $200 plus $50 = $250
  • Annual Percentage Rate or APR = 650%

What a Lender Must Provide to the Applicant of a Loan

Canadian payday loan lenders are required to follow the mandates set by the Consumer Protection Act for license renewal which takes place each year. By law, a payday lender must provide the following information as well:
  • The lender’s address and phone number
  • The date of the loan
  • The total amount of what is being borrowed
  • The repayment amount and the due date (If the borrower is making installments, then the amount that is due and the due dates of the individual payments must be listed)
  • Details of charges, commissions, fees, penalties, and interest for the financing
  • The borrower’s total cost of borrowing
  • The permitted maximum cost of borrowing
  • The APR and the interest that is payable as a percentage rate
  • The charges that the borrower incurs if the loan amount is not paid when due
  • Any interest that is due if a loan is extended or renewed
  • The rights of the borrower if the charges of the loan are higher than what is required by law
  • A copy of the loan contract and terms
Making It All Legal All the aforementioned details are required to be presented in writing in a clear and understandable format. Both the borrower and lender must sign the financing agreement. Cash Card Rules and Regulations If the borrower receives a cash card when he takes out a payday loan, the lender is required, by law, to give the holder a written form about the terms and conditions for the card. Information may include the expiration for the card and the amount of credit that is available. Canceling a Contract While not all contracts allow for a “cooling off” period, Canadians who take out a payday loan have this latitude. According to Canada’s Consumer Protection Act, loan holders are able to cancel an in-store payday loan within 24 hours. If the payday loan is secured online, then the law gives the borrower 48 hours to rescind the contract. So, if you acquire a payday loan at a storefront location, you can cancel the agreement any time by the next business day. For instance, if you take out a loan on Friday, you have until the end of the business day on Monday to cancel funding. Whatever venue you go through in order to obtain the loan, you will not be penalized for canceling the financing. You also do not have to provide an explanation for changing your mind. You can cancel a payday loan at any time if you were not notified about the rights to cancel or you were not supplied with all the info the payday lender must supply at the time of signing. No Cancellation Fee Notification for the cancellation must be made in writing. Payday lenders cannot, by law, assess a fee for ending the contract. Once the written cancellation is submitted and any monies owing are paid, a receipt must be issued by the lender to show that the loan is no longer in effect. A Loan Extension
In addition, a borrower cannot be charged for early repayment of a payday loan. If a fee is charged, the borrower is entitled to ask for a refund. Should a borrower need to extend his loan, the lender can only charge interest on the loan amount. He cannot include any extra charges.