You had an unexpected expense, and needed money quick. In a panic, you went to a payday lender and took out a loan. Now your friend has offered to spot you the money instead. You wish you’d never taken out that payday loan. Is it too late to get out of the agreement? Learn what’s involved in cancelling a payday loan.
There are limits on payday loans
Payday loans are short-term, high-interest loans. They are given by payday lenders to people who can’t borrow from traditional banks or credit unions.
Under the law in BC, the most you can borrow from a payday lender is $1,500. Depending on your income, you may be limited to a lower amount. You can’t borrow more than 50% of the net income you receive during the term of the loan.
Usually, you have 14 to 28 days to repay the loan. Occasionally, you may get as long as 62 days. (But never more than that.)
Most payday lenders charge much higher interest rates and fees than other lenders. The most a payday lender can charge you for a loan is 15% of the principal amount borrowed. This includes interest and any other fees.
Learn more about the limits on payday loans and how they work in our page on why you should consider alternatives to payday loans.
If you’re late repaying the payday loan
If you can’t repay a payday loan on time, the lender can add extra charges to your loan.
The law in BC says that a lender can charge interest at a rate of 30% per year on any amount outstanding after the loan is due.
As well, the lender can charge a one-time $20 fee for any dishonoured cheque or pre-authorized debit.
Your bank may also charge you a fee if there wasn’t enough money in your account for the payment.
If you can’t repay a payday loan
If you don’t repay a payday loan, it will show up in your credit report. This can make it more difficult for you to get a loan, rent an apartment, or find a job. See our guidance on taking charge of your credit report.
The lender may decide to sue you in the Civil Resolution Tribunal (if the amount is less than $5,000) or Small Claims Court (if the amount is between $5,001 and $35,000). If the lawsuit is successful, the lender may be able to take some of your money or other property.
If you know you won’t be able to pay off the loan when it’s due, discuss this with your lender. You may be able to work out a new payment plan. However, the lender can’t give you a new loan to pay off the existing loan.
You get a two-day “cooling-off period”
“I needed a loan to pay my son’s medical bill. I was tempted by the convenience of taking out a payday loan. That evening, I found out the medical procedure was covered by our insurer. I filled out my cancellation notice for the payday loan, and dropped it off with the payday lender the next morning.”
– Denise, Coquitlam
Under the law in BC, you have the right to cancel your payday loan within two business days of getting your first advance, without any penalty.
You actually have until the end of the day on the second day the payday lender is open for business after getting your loan. For example, say you take out a $500 payday loan on Wednesday. You have until closing time on Friday to notify the payday lender that you’re cancelling.
If the lender is closed on one of the two days, you have until the end of the following business day. For example, say you take out a loan on Saturday. If the lender is closed on Sunday, you have until the end of the day on Tuesday to cancel the loan.
When you sign the loan agreement, the lender must give you a cancellation notice form. You must use this form to cancel the loan. For details, see below under “Work out the problem.”
Your rights to cancel after the cooling-off period
The law in BC says you can cancel a payday loan at any time if the payday lender:
- didn’t tell you the full cost of the loan, including the annual percentage rate of interest you will pay
- didn’t tell you about your cancellation rights
- didn’t include the required information in the loan agreement (see our page on getting a payday loan for what information is required)
- didn’t give you a cancellation notice form and a copy of the loan agreement at the time you signed it
- did any other act that isn’t legal
The law sets out a number of things payday lenders are not allowed to do. You can cancel your payday loan at any time if the payday lender does any of the following:
- issues you a second payday loan while the first is still outstanding
- issues you a loan for more than 50% of your net income for the time period of the loan
- demands repayment of your loan before it’s due
- asks your employer to take the payment out of your wages
The loan agreement may give you the right to terminate the loan early, after the cooling-off period. Usually, you will be charged an extra fee for doing so.
If you want to get out of the loan early, you can always repay the loan in full before it’s due. The lender can’t charge you a penalty to do so.
Step 1. Fill out the cancellation notice form
You can always back out of a payday loan agreement within the two-day cooling-off period of receiving the first advance under the loan. You can sometimes back out after the cooling-off period. See “Your rights to cancel after the cooling-off period”, above.
When you sign the loan agreement, the payday lender must give you a cancellation notice form.
To cancel the loan, the first step is to fill out the cancellation notice form.
Step 2. Return the cancellation notice to the lender
To cancel a payday loan, you must deliver the cancellation notice to the lender. If you are cancelling the loan during the two-day cooling-off period, you must deliver the cancellation notice before the end of the day on the second day the payday lender is open for business after getting your loan. For example, say you took out a payday loan and were given the cash on Monday. You have until the end of the day on Wednesday to deliver the cancellation notice.
You can deliver the cancellation notice to the payday lender:
- in person, at its place of business
- by email, registered mail, courier, or fax
If you don’t deliver the notice in person, notice is said to be given when it’s sent.
Step 3. Repay the loan
When you deliver the cancellation notice to the lender, you must also pay back all of the advances you received. If you got an advance in the form of a cheque or cash card, you can return it to the lender (as long as you haven’t cashed it or used any funds).
Once you’ve repaid the loan, the lender must give you a receipt for the amount that you returned. The lender must also return any post-dated cheques or pre-authorized debit forms you gave them.
By cancelling the loan, you’re released from all of your obligations under the loan agreement.
What is a cancellation notice, and where do I get one?
A cancellation notice is a document you use to cancel a payday loan. A payday lender gives it to you when you first take out a payday loan. The lender must also give you a copy of the signed loan agreement.
To cancel a payday loan, you need to deliver the cancellation notice to the payday lender. See the “Work out the problem” section above.
Do I have to deliver the cancellation notice to the lender in person?
No. Delivering the cancellation notice in person is just one of your options. You can also send the notice by email, registered mail, courier, or fax. If you use any of these other methods, notice is said to be given at the time the cancellation notice is sent.
What if the payday lender insisted I have someone guarantee my loan?
Under the law in BC, payday lenders can’t ask for any guarantee when they provide a payday loan. Nor can they ask for a security interest on your property (for example, that you give a security interest in a vehicle or tools). If a payday lender insisted that you have someone guarantee a payday loan, the lender broke the law. You can cancel the loan. See the “Work out the problem” section above for the steps to take.