What counts as a payday loan
A payday loan is a short-term, typically small-dollar loan advanced against your next pay cheque or other expected income, usually due in full on or shortly after your next payday. In Ontario, anyone lending money on this basis must be licensed under the Payday Loans Act, 2008, and only licensed lenders may legally offer payday loans to Ontario residents. Ontario's Ministry of Public and Business Service Delivery maintains the licence registry and enforces the Act.
$15
Maximum cost per $100 borrowed
2 business days
Cooling-off cancellation window
1
Loan at a time — no concurrent payday loans from the same lender
The $15-per-$100 cost cap
The Payday Loans Act, 2008 sets a maximum total cost of borrowing for a payday loan in Ontario at $15 per $100 advanced. This cap is inclusive of interest and most fees the lender charges for making the loan — a lender cannot layer additional "administration" or "processing" charges on top to exceed it. The cap applies regardless of the loan term, meaning a two-week loan and a five-day loan carry the same maximum dollar cost per $100 borrowed, even though the shorter loan therefore carries a much higher cost when expressed as an annualized rate.
Before you sign, a licensed lender must give you a loan agreement that discloses, in a standard-form cost-of-borrowing box, the amount advanced, the total cost of borrowing in dollars, the annual percentage rate, and the due date. This disclosure format exists specifically so borrowers can compare payday loans against other forms of credit on an equal footing.
Worked example: true annualized cost
Borrowing $300 for 14 days at the maximum permitted cost looks like this:
- Cost of borrowing: $15 × 3 = $45
- Total repayable on the due date: $345
- Expressed as an annual percentage rate, a $45 charge on $300 over 14 days works out to roughly 391% APR — far above the Criminal Code's general 60% ceiling, which is precisely why payday loans are carved out and separately regulated under a provincial cost cap rather than the ordinary criminal interest rate rule.
The dollar cap and the percentage rate are not the same thing
$15 per $100 sounds modest stated as a flat fee, but because the loan term is measured in days rather than years, the equivalent annual rate is very high. Always convert the dollar cost to an annualized rate before comparing a payday loan to a line of credit, credit card cash advance, or credit union loan.
Your two-day cooling-off right
After signing a payday loan agreement, Ontario borrowers have the right to cancel the loan, with no cost or penalty, until the end of the second business day after receiving a copy of the agreement. To cancel, you must return the full amount you were advanced; the lender must then refund any fee already charged and cannot hold you to the cost of borrowing for a loan you cancel within the window. This right cannot be waived by anything written into the loan agreement.
No rollovers, no concurrent loans
The Act prohibits a lender from "rolling over" a payday loan — extending or replacing it with a new loan to cover the same debt before it is repaid — because rollovers are the principal mechanism by which small loans compound into unmanageable balances. A licensed lender is also barred from advancing a new payday loan to a borrower who already has an outstanding payday loan with that same lender, and lenders are required to check for outstanding loans before advancing new credit.
Extended payment plans
If you take out a third payday loan from the same lender within a 63-day period, the lender is required to offer you an extended payment plan rather than a further single-due-date loan. An extended plan spreads repayment over at least two additional pay periods and is designed to break the pattern of repeat short-term borrowing that a single lump-sum due date can create for borrowers already under financial strain.
Lower-cost alternatives to consider first
Because the effective cost of a payday loan is so high once annualized, it is worth exhausting lower-cost options first wherever the timeline allows:
- Credit union small-dollar loans: many Ontario credit unions offer short-term loans to members at conventional interest rates, sometimes with same-day approval.
- Employer pay advances: some employers will advance a portion of an already-earned pay cheque with no interest cost at all.
- Negotiating directly with an existing creditor: a temporary hardship arrangement or missed-payment deferral with a current lender is very often cheaper than taking on new short-term debt to cover the shortfall.
- A line of credit or credit card cash advance: both carry real interest costs, but rates are almost always far below the annualized cost of a payday loan.
If you already hold an account with FDR Asset Group and a payday loan is being considered purely to make a payment on that account, contact us first — an adjusted arrangement is usually available and will cost you far less than short-term borrowing.
General information, not legal advice
This page summarizes the general effect of the Payday Loans Act, 2008 for informational purposes and is not legal advice. Regulations made under the Act set out further detail, including exact disclosure wording. The official consolidated statute and regulations on Ontario's e-Laws website prevail over this summary.