Avoiding payday loan scams is essential for all borrowers. Payday loans, also known as cash advances or short-term loans, provide support to cover unexpected expenses or bridge the gap between paychecks.
If you’re short on cash and don’t have the means to cover your expenses, you can apply and receive funds fast - often within minutes of approval. It’s a very helpful solution to any pressing financial need. Simply apply for payday financing online, receive quick approval, and get funds via e-Transfer in minutes.
Borrowers of all credit types and financial backgrounds can apply. It’s an inclusive lending option, especially if you’ve faced rejection from traditional credit providers due to credit score and income level.
However, as payday advances rise in popularity, so do scams and deceptive lending practices. Fraudulent parties often take advantage of vulnerable borrowers by offering loans with hidden fees, exorbitant interest rates, and aggressive collection tactics.
As a borrower, always be aware of these potential scams and take necessary precautions to avoid falling victim. Know that all reputable payday loan companies will never hide their fees or use aggressive tactics to collect payments. They follow all provincial and federal laws regarding alternative financing in Canada.
With the right knowledge, it’s possible to avoid payday loan scams. Whether you’re a first-time borrower or seeking a re-loan, we’ll discuss the best practices and tips to protect yourself the right way.
What Are Payday Loan Scams?
What are payday loan scams? It involves a lender deceiving borrowers into paying excessive fees or providing them with false information about the terms and conditions.
Some common scams include hidden fees that are not disclosed upfront, inflated interest rates, and aggressive collection tactics such as continuous calls and warnings of legal action. Scammers may also use your personal information or demand payment for a loan that you never actually received.
An example of a payday loan scam is when someone requires an upfront payment before providing funds. Once you make the payment, they disappear. This is a clear red flag; you should never have to pay any upfront fees when seeking alternative financial support.
Are Payday Loans Scams?
No! Payday loans are not scams. There are many responsible loan providers available. The key is finding the right lender that holds valid licenses and offers transparent terms.
A scam is an intentional act to deceive, typically for monetary gain. Unfortunately, the payday loan industry falls victim to scammers who exploit those in vulnerable financial situations. So while these loans themselves are not scams, you must remain vigilant and informed to avoid falling prey to fraudulent practices.
Protecting Yourself From Payday Loan Scams
Protecting yourself from payday loan scams is the first step in responsible borrowing. If you’re considering alternative financial support, do your research. This not only includes knowing the warning signs of fraudulent lending but also understanding the laws and regulations in your province. The more informed you are, the better equipped you’ll be to make the right decision.
Here are some factors to consider when evaluating a short-duration lender:
Licensing: Research the company’s licensing information to ensure it’s authorized to operate in your province. It should display licenses and other credentials on its websites or in its offices. If you cannot find any licensing information, it’s best to look for a different provider.
Contact Information: A legitimate company will have a phone number and email address for easy communication. It’s even better if they have 24/7 customer support - it shows they commit to helping their customers. If you cannot find any contact information or if it seems suspicious, avoid working with them.
Interest Rates & Fees: You can trust a lending company that discloses all interest rates and applicable fees upfront. The law requires this. If the company is not transparent about their rates and fees, do not work with them.
Cooling-off Period: You have the right to cancel a payday loan within a certain time frame. They call this a "cooling-off period," and it allows you to reconsider your decision without any fees or charges. Always ensure you choose a provider that offers a cooling-off period, as it’s a legal obligation in Canada.
Laws & Regulations: Each province has regulations governing payday loans. This includes the maximum borrowing amounts, capped interest rates, and specific repayment terms. Make sure the provider you choose follows these regulations.
For more reference, the table below highlights payday loan regulations by province. This includes the maximum cost per $100 loan, the cooling-off period, and maximum penalty for a returned cheque or pre-authorized debit.
All reputable companies will follow these guidelines. If a company doesn’t comply with these regulations, do not move forward with the application.
Province | Maximum Cost per $100 Loan | Cooling-off Period | Maximum Penalty for Returned Payment |
Alberta | $15 | 2 business days | $25 |
British Columbia | $15 | 2 business days | $20 |
Manitoba | $17 | 48 hours, excludes Sundays and holidays | $20 |
New Brunswick | $15 | 48 hours, excludes Sundays and holidays | $20 |
Newfoundland and Labrador | $14 | 2 business days | $20 |
Nova Scotia | $19 | Next business day (2 days for online loans) | $40 (default penalty) |
Ontario | $15 | 2 business days | $25 |
Prince Edward Island | $15 | 2 business days | N/A |
Saskatchewan | $17 | Next business day | $25 |
Detecting Payday Loan Scams
Detecting payday loan scams means being aware of red flags. If you come across any of the following warning signs, avoid and look for a different option. If you’ve already fallen victim to a scam, report it immediately.
A great starting point is to reach out to your local consumer protection agency or the Canadian Anti-Fraud Centre. They can provide you with resources and guidance on how to handle the situation and help you recover any lost money.
You can also reach out to any of the three major credit reporting agencies if you feel your personal and financial information has been compromised. They can help you monitor your credit and identity for any signs of fraud.
Here are some red flags to look out for when detecting payday loan scams:
Overcharging Interest Rates
A telltale sign of a payday loan scam is excessive interest rates. These rates will far exceed the legal limits. They often charge hidden fees and penalties, making it very difficult to manage the debt.
For example, if you live in Ontario and notice the interest rate above the legal limit of $15 per $100 borrowed, walk away.. On a 14-day loan of $300, the total cost of borrowing should never exceed the legal maximum. This means your total payback amount is $345 - the borrowed amount plus $45 in interest.
Deceptive Loan Terms
Some lenders cheat the rulebook with deceptive terms that bury high fees and extra costs. Always read the fine print and never sign a loan agreement with terms you do not understand or agree with.
Some words to look out for when detecting payday loan scams include the following:
Upfront fee required: You should never pay a lender before receiving your funds. The only time you should send money is to repay the loan itself.
100% approval: No provider can fully guarantee approval without assessing your repayment ability.
No repayment timeline: Trusted lenders will always provide a clear and agreed upon timeline for repayment. If there is no mention of a repayment schedule, it’s likely a scam.
Zero interest: This is a common tactic scammers use to lure in borrowers. They may claim to offer a “zero interest” loan, but in reality, they make up for it with high fees and hidden charges.
Large Borrowing Amounts
Detecting payday loan scams through large borrowing amounts is important. No payday loan in Canada can exceed $1,500. Legitimate companies will adhere to these laws and will only provide you with an amount you can afford.
Unethical lending companies may offer unlimited amounts or encourage you to take on more than you can handle. This high borrowing amount often comes with hidden fees and inflated interest rates, making it very difficult to repay.
Poor Website Security
The rise of online lending is very convenient if you’re in a pinch and need cash fast. But, it can also open doors to suspicious parties posing as legitimate lending companies.
Always check the security of a lender’s website or mobile app before providing any information. Look for a lock item in the address bar and “https” in the URL, as these indicate the site is secure.
The loan provider should have advanced encryption technology, including 256 bit SSL encoded bank-level security. That’s the same level of security all the major banks use. They should also have a privacy policy outlining how they handle your personal information.
Aggressive Collection Tactics
Another concerning aspect of payday loan scams is aggressive collection tactics. Unethical parties may burden borrowers with excessive phone calls if they are unable to make payments on time.
Always know your rights as a borrower and understand what actions are considered harassment. If you are experiencing aggressive collection tactics, you have the right to file a complaint with the Financial Consumer Agency of Canada.
Avoid Payday Loan Scams with iCash & Borrow Responsibly
It’s easy to avoid payday loan scams with iCash and learn to borrow responsibly. Turning to a trusted lending company provides peace of mind and confidence. As a licensed Canadian lender, we offer safe and secure loans with transparent terms and conditions.
Being a responsible lender means providing you with clear information - and that includes knowing how to take the steps to avoiding payday loan scams. Remember, if something doesn’t seem right, it probably isn’t.
Do your research and choose a short-duration loan provider you can trust. Need quick cash today? Apply online or using the secure iCash app and feel confident in your financial choices.
