A comparison is not only about determining which country has a better system. We can also learn from others, adopt some good traits, and avoid mistakes. Thus, it can positively affect the whole industry in the long run. The fact that Canada and the US are two neighboring countries with similar financial systems makes them almost ideal for such a collation.
When it comes to payday lending, there are a few differences in regulatory frameworks between Canada and the US. Let’s examine the similarities and distinctions and find out what development prospects payday loans have in both countries.
Payday Loans in Canada
About two million Canadians use payday loans each year. This makes them quite a popular option for people who are in need of fast cash and have less-than-ideal credit. Another name for payday loans in Canada is a high-cost loan or high-cost credit.
Overview
Canadian payday loans are regulated at the provincial level. Generally, they provide small cash advances at the following terms:
- Loan amount: $100 to $1,500;
- Repayment period: organized around your paycheck schedule. Usually 14 to 62 days. A payday loan must be repaid in one lump sum;
- Maximum interest rate: varies by province. Usually expressed in a flat fee, which is $14 to $17 per $100 borrowed;
- Maximum fees: varies by province. Usually up to $25 for a returned cheque or pre-authorized debit;
- Hard credit checks: are not performed.
Interest Rates And Fees
In most provinces, lenders are not allowed to charge more than $15 per each $100 obtained. Let’s take a closer look at an example. Suppose that you want to take out $300 for 14 days. Thus, your total loan cost will be $345. Here’s how you can calculate an annual percentage rate:
- Divide the amount of interest ($45) by your loan principal ($300).
- Multiply the result by the number of days in the year (365).
- Divide the value you’ve got by the number of days of your loan term.
- Multiply this number by 100.
Using the example above, the APR on a loan is 391%.
Additionally, you can face penalties if you default on your loan. The amount of late fees varies by province. The highest fee is set for payday loans in Nova Scotia, where you will be obliged to pay an additional $40 if you don’t repay the money on time.
Legality
Payday lending is legal in Canada. Each province has its own regulations regarding payday loans. The common rule is that lenders are obliged to have a valid license in each province where they operate.
Payday lenders in Canada are subject to consumer protection laws. This document requires them to disclose the cost of the loan, including the annual percentage rate (APR), before the borrower agrees to the loan. In addition, payday loans in Canada have certain limits on the loan amount, repayment period, interest rate, and fees. The maximum possible values can differ by province.
Other Conditions
In most Canadian provinces, payday lenders can’t extend or roll over a payday loan. To repay the loan, you could be asked to visit the same location where you obtained it. Also, lenders are not allowed to ask for an automatic deduction from your wage. If you want to cancel a loan, there’s a cooling-off period to do this without penalties. This period is more likely to be two business days. If you don’t repay the loan on time, a lender can send your debt to a collection agency.
Payday Loans in the United States
Payday loans are pretty popular among under-banked Americans with credit issues. They allow them to get money within one business day and can be used for any purpose. Each year, nearly 12 million Americans use payday loans. Let’s learn more about how this form of debt works in the US.
Overview
Payday loans in the US are regulated by state law. Here is a payday loan overview:
- Loan amount: $100 to $1,000;
- Repayment period: organized around your paycheck schedule. Usually between 14 and 31 days. Must be repaid in one lump sum;
- Maximum interest rate: varies by state. An average is $15 to $30 per $100 borrowed;
- Maximum fees: varies by state. Rollover fees may be up to $45. Origination fees may be up to 10% of your loan amount;
- Hard credit checks: are performed.
Interest Rates And Fees
Payday loans in the United States are typically more expensive than in Canada. Interest rates are usually expressed in flat fees. On average, payday lenders charge between $15 and $30 per each $100 borrowed.
For example, if you’re going to get a 500 dollar loan with bad credit, you may be asked to pay back as much as $650. Thus, an annual percentage rate on such a loan for a 14-day use will be 782%. At the same time, this amount can be lower. The exact sum will depend solely on the lender that you’re dealing with.
In addition, you will be obliged to pay additional fees if you find it difficult to repay the loan on schedule.
Legality
Payday loans can be prohibited in some states. To be precise, this form of debt is banned in 16 states and the District of Columbia, allowed with restrictions in 3 states, and legal in 31 states. According to federal law, payday lenders are required to disclose the cost of the loan in the loan agreement. In addition, payday lenders are required to be licensed and are subject to consumer protection laws.
Other Conditions
Unlike Canadian payday loans, US cash advances can be rolled over in some states. A borrower who wants to expand the repayment term will be obliged to pay additional fees that will be added to the total loan cost. Also, payday lenders in the US can use automatic deduction and withdraw money directly from a borrower’s bank account. In case of non-payment, lenders are allowed to turn to collection agencies.
Final Thoughts on Payday Loans: Canadian vs The US
While payday loans are available in both Canada and the United States, their regulations and costs vary significantly. The most obvious distinctions between payday loans in these two countries are that American ones have higher costs and provide the possibility of extending the loan. Also, US lenders can automatically deduct money from the borrowers’ bank accounts while it’s prohibited in Canada. However, regardless of the country, this form of debt remains expensive. That is why you need to use it with caution and make sure the requested amount fits your budget.