How Do Payday Loans Work in Canada for 2023?

Payday Loans

Financial emergencies can strike at any time. Sudden car repairs or unanticipated bills can greatly impact your family finances especially when you cannot rely on savings. 

Payday loans may be one solution. The right payday loan can provide the financial support you need to get through a crisis.

Curious about payday loans in Canada? Keep reading to know more.

What is a payday loan?

A payday loan is a short-term loan designed to help you quickly access the cash you need. This type of loan is organized around your pay schedule, so you can pay it back in full once your next paycheque arrives.

When it is time to repay the loan, you will pay the lender your original principal and an additional fee but remember that fees may differ from province to province. In Canada, you can borrow a maximum of $1,500 at a time.

One benefit of payday loans is that you can use them for anything. Funds can be used for groceries, car or home repairs, utility bills, and more.

Payday loans are also a fast and convenient way to access funds you may need urgently; you will likely receive your funds the same day, which is less common with other financing options.

Who can take out a payday loan?

Eligibility for payday loans may differ from lender to lender; however, most lenders offer loans to applicants who are at least eighteen years old with a bank account and a verifiable source of income. Before issuing a loan, lenders may ask for proof of age, income, and address.

Applying for a payday loan will not affect your credit, so applicants with less-than-perfect credit scores can get payday loans too.

How do payday loans work?

Once you submit your application and are approved for the loan, your lender will either deposit the funds into your account or give you the money in cash. Approval is unlikely to take longer than a day, and payday loans do not require a credit check.

As part of your application, the lender requests either a post-dated cheque or pre-authorized debit form that enables them to withdraw the loan principal plus fee from your account on your payday.

How do I apply for a payday loan?

Payday lenders require a license to lend in your province or territory, so start by seeking out a reputable and licensed lender. It never hurts to check out reviews before deciding.

Most payday lenders allow you to apply online or at a brick-and-mortar branch. Whether you apply online or in-store, you will typically be asked to fill out an application form and attach documentation including proof of your identity, address, and income.

What to remember when applying for a payday loan

Once you have decided that a payday loan is the right choice for you, do not forget to keep these steps in mind:

  • Choose a licensed and reputable payday loan lender
  • Read the loan agreement carefully and understand what is expected of you
  • Understand which of your lender’s charges and policies apply if your direct debit/cheque repayment does not go through
  • Remember that most provincial governments only let you have one payday loan at a time