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The payday loan industry made its appearance in Canada in the middle of the 1990s at the time when short-term loans became very much in demand all over the world. Before then, consumers essentially only had their friends and family to turn to when they had unexpected expenses such as medical bills and car repairs.

Nature of payday loans and who needs them

Payday loans are available in small amounts that the borrower has to repay on the next payday. The average amount obtained through payday loans is $280, although this could vary from time to time, and they are usually payable within 10 days. They do not require a collateral nor a credit check. Thus, even consumers with a poor credit history can take advantage of this type of loan. The only requirement is that the borrower should have a bank account and that he or she is employed. He or she also has to issue a post-dated cheque for the loan amount and the various fees and charges.

How payday loans began in Canada

Payday loans emerged in the 1990s in response to the rising demand for such short-term unsecured loans. The opportunity for getting salary advances has been declining because of the trend of using direct deposits and the outsourcing of companies' payroll. Thus, people who required small sums of unsecured loans had only a few alternatives. Since then, the payday lending industry has grown rapidly and the federal and provincial governments are striving to ensure that payday loans do not impose undue hardships on borrowers. For one, the Canadian Criminal Code has specified that the interest rate should not exceed 60 percent per annum.

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