Payday loans are an expensive and risky option for borrowing money. If you feel you have no option other than taking out a payday loan, learn how to protect yourself.

What you should know

When it comes to borrowing money, payday loans are a very expensive option. Before you get one, have you considered other options?

For example: getting a new credit card. The cost of using a credit card is roughly 20 times less than the cost of taking out a 14-day payday loan.

A secured credit card is another option. The approval process is much less strict than for a regular credit card.

An even better option is to open a line of credit. The best case scenario is opening a small line of credit when your credit is good and you don’t need to use it. That way, it can act as a “safety net” when you need it, rather than resorting to a payday loan.

There are certain legal rules the lender must play by. For example, the most a payday lender can charge is 15% of the principal amount borrowed. (This includes interest and other fees.)

The terms of your loan must be in a written agreement. Before you sign it, the lender must tell you the full cost of the loan, the interest rate, and how to cancel the loan.

Payday lenders must have a licence to operate for each of their locations. The licence must be displayed in the location. Online payday lenders must have their licence number displayed on their homepage. If you deal with a payday lender over the phone, they should provide their licence number before you apply for a loan.

You can lookup whether a payday lender has a licence. See the licence lookup on the Consumer Protection BC website.

Under the law, there are a number of things a payday lender is not allowed to do. For example, they can’t give you more than one loan at a time. They can’t give you a second loan to pay off the first. They can’t ask you for security for the loan. (Security is a property interest you give to a lender to secure a loan.)

You can cancel a payday loan — without penalty and for any reason — within two days of getting your first advance.

Say you take out a payday loan on Tuesday. You have until the end of the day on Thursday to notify the lender that you’re cancelling.

And you can cancel the payday loan at any time if the payday lender:

  • didn’t tell you the full cost of the loan
  • didn’t tell you about your cancellation rights
  • didn’t give you a cancellation form and a copy of the agreement when you signed it
  • didn’t include the required information in your agreement
  • did any other act that isn’t allowed under the law

We explain how to cancel a loan. See cancelling a payday loan.

Protect yourself

These steps will help protect you when getting a payday loan.

Step 1. Shop around before you sign anything

Step 2. Make sure the lender gives you a copy of the agreement

Step 3. Make sure the lender gives you a cancellation form

Step 1. Shop around before you sign anything

If you absolutely must get a payday loan, shop around to a few lenders. Go to a few different lenders and compare their rates. Research their reputations before deciding. You can search online for reviews of the lender.

Step 2. Make sure the lender gives you a copy of the agreement

When you sign the loan agreement, make sure the lender gives you a copy. They’re required by law to do so. Have a careful look through it to make sure you’re clear on the terms.

Step 3. Make sure the lender gives you a cancellation form

Make sure the lender gives you a cancellation notice form when you sign the agreement. They’re required by law to give it to you.

We have more on payday loans if you’d like to go further. See our in-depth coverage of this topic.

Who can help

These agencies can help with problems relating to payday loans or debt.

Credit Counselling Society logo
Credit Counselling Society of BC
A non-profit society that helps people better manage their money and debt.
Consumer Protection BC logo
Consumer Protection BC
They can help find out if a payday lender has a valid licence in BC.

If you find yourself in hot water over a payday loan, consider getting legal advice.

Access Pro Bono logo
Lawyer Referral Service
Helps you connect with a lawyer for a free half-hour consult.
Access Pro Bono logo
Access Pro Bono Clinics
Volunteer lawyers provide free legal advice to people with limited means.
People's Law School logo
People’s Law School
See more options for free or low-cost legal help.

This information applies to British Columbia, Canada

Reviewed in December 2019

Time to read: 4 minutes

Reviewed for legal accuracy by

Mario Garcia, Ratcliff & Company LLP

Mario Garcia, a lawyer at Ratcliff & Company LLP in North Vancouver, BC

This information from People’s Law School explains in a general way the law that applies in British Columbia, Canada. The information is not intended as legal advice. See our disclaimer.

Related

On Dial-A-Law

Dial-A-Law has more information on Borrowing money in the section on Money & debt.