A payday loan is a short-term loan for a relatively small amount of money at a very high interest rate. You can borrow up to a maximum of 30% of your net pay from your most recent pay stub, up to $1,500. The maximum interest you can be charged is $15 for every $100 you borrow.
Payday loans are promoted as a way to help cover expenses and tide you over to your next payday. Although a payday loan may seem convenient, they’re an extremely expensive way to borrow money. Before you take out a payday loan, carefully consider the expense and any other options available to you. Also consider how you can adjust your budget to help make sure you don’t fall short of money before your next paycheque.
No payday lender may offer, arrange, or provide payday loans to residents of New Brunswick without being licensed. Online payday lenders must also be licensed and follow the same rules as payday lenders with store front locations. Contact FCNB to check the licence status of a payday lender.
Alternatives to payday loans
Before taking out a payday loan, consider alternatives. Emergency savings, paying with a credit card, or borrowing from friends and family may be a less expensive and safer option than taking on additional expensive debt. Taking out a payday loan when you are in a financially difficult situation increases your risk of not being in a position to pay it back, and falling into a debt trap. Other options to consider include negotiating with your creditors; talking to your financial institution about overdraft protection; a small personal loan or line of credit; and asking for a pay advance from your employer or working extra hours.
How much do payday loans cost?
In New Brunswick, the most you can be charged for a payday loan is $15 per $100 borrowed. Payday loans are a very expensive way to borrow money. When you take out a payday loan, you pay high fees, you're charged a higher interest rate than on a regular loan or line of credit, and you may have to pay a fee if your cheque or pre-authorized debit doesn't go through. These high fees can make it harder to pay back a payday loan.
Paying back a payday loan
A payday loan typically has to be paid back on your next payday. But, you have the right to pay the loan back early, or prepay the outstanding balance at any time without additional charges or penalties. You can also make partial prepayments without additional charges or penalties on any scheduled payment date. You will still be required to pay the cost of borrowing (maximum $15 for every $100 you borrow), even if you pay the loan back before the due date. Each payday loan agreement must have statements that explain this.
There are certain rules in place to protect you when dealing with paying back a payday loan. These rules prohibit certain practices, such as:
- A payday lender can’t force you to sign over items that you own, such as your car or house, for the payment of a payday loan.
- A payday lender cannot take or accept the following as security for the payment of a payday loan or the performance of an obligation under a payday loan agreement:
- real or personal property (such as your car or house)
- an interest in real or personal property
- a guarantee
- A payday lender can’t garnish your wages. No payday lender can make you sign a document that allows them to go to your employer to collect the money for your loan.
- A payday lender can’t contact your employer, and can’t contact you at work.
For full details of prohibited practices, review the Cost of Credit Disclosure and Payday Loans Act, Rule PDL-001 Payday Loans Licensing and Ongoing Obligations, and Regulation 2017-23 (Payday Lending Regulation – Cost of Credit Disclosure and Payday Loans Act).
If you do not repay your payday loan by the due date, there can be serious consequences. Your debt could end up costing much more due to Non-sufficient Fund (NSF) fees and accumulated interest, and you can do serious damage to your credit. It can be easy to get stuck in a debt trap. If you do choose to take out a payday loan, be absolutely sure you can pay it back by the due date.
For full details related to costs of payday loans, including costs associated with late payments, please review Regulation 2017-23 (Payday Lending Regulation – Cost of Credit Disclosure and Payday Loans Act).