Payday Loans in Canada
Online payday loans are a relatively new phenomenon in Canada. These short-term, single-payment loans have gained immense popularity in a short amount of time because of their simple and straightforward application and payment procedure. The loans can be obtained online quickly with the promise of repayment on receiving the next paycheque by the debtor.
Payday loans provide individuals facing a short-term financial crisis an easy way to obtain some quick cash. However, the industry is full of lenders who charge exorbitantly high interest rates to get advantage of the debtor’s financially-challenged position. The government, therefore, has implemented some rules and regulations which must be followed by payday lenders.
In this article, we are summarising the federal and provincial laws regarding payday loans in Canada.
Federal Payday Rules and Regulations
The federal payday law, which is known as the Criminal Code, prohibits loans which are offered at a ‘criminal’ interest rate. A criminal interest rate is any interest rate above 60% per annum. The interest rate includes all charges and expenses associated with the loan, except the official fees.
It is important to understand that the Criminal Code is aimed at catching the loan sharks rather than providing legislative protection to the consumer. Payday loans under $1500 offered for a period of less than 62 days are exempted under the Criminal Code.
Provincial Payday Rules and Regulations
The provincial rules and regulations are an attempt from the government to further regulate the online payday loan industry and provide protection to the debtor. These laws provide direction regarding:
- Interest Rate Caps – Only two provinces of Canada, Quebec and Manitoba, have set interest cap rates. Quebec has set the interest cap rate at 35% while Manitoba has set a limit of 17%.
- Cancellation Protection – A window of one to two business days is provided by each province for borrower cancellation rights.
- Information in Agreement – Discrepancy exists among provincial laws when it comes to the disclosure of information in agreement. Some provinces require disclosure of the cost of the loan in the agreement while others require a statement for high cost loans only.
- Rollover Prohibition – All provinces don’t allow rollover of the unpaid loan or charging an extra fee for rollovers.
- Licensing – Payday lenders must obtain a license from the provincial authority. The licensing requirements vary from paying licensing fee to producing certain documents.
- Remedies – Remedies vary from a penalty of up to $10,000 to exemption of any amount over principal amount.
What a Payday Loan Debtor Should Know
Federal and provincial payday rules and regulations can be difficult to understand for a common man with little or no legislative knowledge. For our readers, we are summarising the regulations here. When selecting a payday lender, make sure that your lender adheres to the following regulations imposed by the government.
- Your lender cannot charge you more than $21 for every $100 borrowed.
- Your lender cannot offer or sell you any goods or services other than the payday loan.
- Your lender cannot rollover the loan. This means that you cannot obtain a second loan from the same lender before paying your first loan in full.
- You have the right to cancel your payday loan contract within to two business days.
Payday loans are great to resolve small, temporary financial issues. However, it is recommended that you obtain payday loans from a licensed lender only to avoid risk of frauds.
High Risk Loans for Canadians
Sometimes, credit score of a person goes below 580 marks as per FICO, a state in which finance seekers are usually not entertained by the lending agencies or lending institutions. Getting upset on receipt of letters of rejection from the finance providers is quite normal. How can it happen that there is no rescue route for the people who have limitation in credit performance?
People of Canada can go for high risk for loans Canadians and meet their demands which surface time to time. In Canada, people with impaired credit status have increased in number in the recent years and high risk lenders are doing good business. Demand for high risk loans have gone up considerably.
High risk loans refer to a variety of finance for which the finance providers are to take greater risk. This is why terms and condition for high risk loans for Canadians are a little bit stricter than many other finance programs available in the finance market. As per existing practices in the finance market of Canada, high risk loans are attached to higher rates of interest. The period for reimbursement is also set keeping the risk factor in mind. It is natural that good credit holders can secured financial assistance at better terms and that they are to pay the interest at comparatively low rates.
In unsecured category of high risk loans for Canadians, the loan seekers are not to support the loan application with valuable possessions, but they get the finance at friendlier terms and condition. In secured variant, collateral is a must. The finance seekers can employ their home as a guarantee against which the loan amount is advanced. It is a fact that they are to pay the interest at lower rates. They should bear in mind that for lapses in repayment, (or for defaults, less payment, late payment, arrears etc), the loan seekers are charged with penalties and fines.
The authorized residents or citizens of Canada enjoy the right to apply for high risk loans for Canadians. It is a must that the finance seekers are already over 18. It is again a must that they are employed with sizeable and regular monthly income. The finance seekers must also be in possession of a valid and active savings or checking account.
People who look for high risk loans for Canadians should secure necessary information from finance agencies and finance institutions. Online portals are also there. They should study the materials displayed in the relevant websites. The lenders prefer online submission of loan application.