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Payday loans are short-term loans in relatively small amounts that are meant to be paid back on the next payday of the borrower. These loans, which are also known as cash advance loans, are targeted towards people who have difficulties obtaining the usual bank loans. Here are the salient features of payday loans in Canada.

Common requirements

While payday loan companies may have different requirements, the usual documents needed are your latest paystub, two identification cards, a blank cheque, a previous bank statement, and a utility bill. After preparing these requirements, borrowers can submit their applications online, through the phone, or by going directly to a payday loan shop. A representative will then inform borrowers if they are qualified after they have submitted their personal information.

After approval of the payday loan

Borrowers will have to issue post-dated cheques for complete payment of the principal and the various charges. The cheques should be ready to be cashed out on the borrowers' next payday. When the next payday arrives, borrowers can either let the loan company cash their cheques or they can go to the payday loan shop to pay in cash. Those who feel that their funds are still insufficient can re-borrow the same amount immediately after paying.

Regulations governing payday loans

Because of the short duration of payday loans, the effective annual rate can be much higher than the nominal annual percentage rate because of compounding. The Criminal Code of Canada prohibits an interest rate that is more than 60 percent per year. British Columbia has also established payday regulations effective November 1, 2009 requiring that total charges should not exceed 23 percent.

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