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While it can be argued that in many ways, payday loans can be a great option for certain consumers. If you need a loan, payday loan companies do a great job of getting you cash. However, the APR they charge is exorbitant. Thankfully, there are payday loan alternatives in Canada.

Whether you need help covering the cost of a vehicle repair, are trying to make ends meet, or consolidate debts, there are payday loan alternatives out there that can help. 

Payday Loan Alternatives

Rather than put yourself at risk with a payday loan, you may want to consider other options when extra funds are required.

Payday Loan Alternatives: Personal Loan

Personal loans tend to have quick approval times, lower interest rates, and longer repayment terms when compared to payday loans. To repay a personal loan, you’ll be required to make scheduled payments, usually monthly or bi-weekly. The repayment schedule is much less stressful compared to payday loans where the entire amount plus interest becomes due in a short period of time, typically two weeks. 

You might be wondering, what about credit score requirements? Personal loan lenders will likely consider your credit score, but they will be more concerned with your ability to repay the loan. If you have an income that’s high enough to pay the loan and a steady job to make the payments consistently, your credit score usually won’t be a problem. That said, having a fair to excellent credit score can help you secure a low-interest rate. As such, it’s a good idea to check your credit score and improve it before applying.

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Payday Loan Alternatives: Credit Cards And Cash Advances

If your emergency expense can be covered by a credit card, that is an excellent solution. If you can’t use credit, cash advances from your credit card are another option. While there is a hefty fee for using a cash advance, it’s a small price to pay for the convenience of cash. Furthermore, you’d be paying exorbitant interest on a payday loan anyway, a cash advance fee can be more affordable. 

Just remember that interest starts to accrue on withdrawn cash from credit cards the day you make the withdrawal. Even though you have a longer amount of time to repay the debt, don’t wait too long because interest can build up quickly. 

Payday Loan Alternatives: Secured Loans

If you have an issue obtaining an unsecured loan and have an asset that can be used as collateral, you can consider getting a secured loan. Each lender has varying collateral requirements. Reach out to lenders to determine if your collateral is acceptable. 

Payday Loan Alternatives: Try A Credit Union

Credit unions are known for offering affordable interest rates on their loans. These institutions tend to consider additional approval factors on top of credit scores as well. It’s definitely worth a shot to get a loan from a credit union as they are one of the best lenders on the market.

Payday Loan Alternatives: Borrow From Friends And Family

Pride can be difficult to overcome, but remember that we all need help from time to time. Most friends and family will be more than happy to help you with your short term financial problems. The benefit of borrowing from friends and family is there won’t be any interest. However, don’t take advantage of your loved ones, do your best to repay them quickly. 

Payday Loan Alternatives: Use Your Emergency Fund

If you have an emergency fund, situations like these are precisely what the fund is for. Hopefully, the fund covers the entire cost if not, you can use your fund in conjunction with another financial tool. If you don’t have an emergency fund, learn from this experience and build one for future financial emergencies. 

Payday Loan Alternatives: Ask Your Employer For An Advance Or Extra Hours

Many employers are completely understanding of emergencies and are willing to help you out with an advance. Your boss is human too and will likely understand exactly what you are going through. It can be awkward to ask your employer but do your best to ask calmly and respectfully. Despite your nerves, it’s definitely worth your while considering the money will be interest-free. The worst thing that can happen is your boss says no. 

Alternatively, you can ask your boss for extra hours to make more money. This money can be put toward your financial emergency. You can find a temporary or permanent side job for extra cash. Of course, if your financial issue is time-sensitive, this might not be an option.

Payday Loan Alternatives: Overdraft Protection

Overdraft protection is a service that your bank provides that lets you take out more than what’s currently in your bank account. So, if your account has $500 and you take out $600, your overdraft protection service will allow you to take out that extra $100 without charging you a non-sufficient funds (NSF) fee. If you’re writing a cheque, it will clear, even if your account technically does not have enough funds in it.

Taking advantage of this service can be advantageous in the event of an emergency. The money is available immediately without the need for you to go through a loan application process. 

Just keep in mind that your bank will charge you a fee for overdraft protection. Plus, you may need good credit to be eligible.

Payday Loan Alternatives: Government Financial Assistance

Your provincial government may offer financial assistance if you qualify. For instance, there are programs available for low-income earners and students who may need some financial support. These services are free, and the funds provided will not add to your debt.

Speak To Your Creditors

While coming up with the money needed to handle your financial crisis, you should communicate with creditors. Ultimately, creditors want to get paid. When you communicate with creditors regarding when they can expect a payment, they will be less likely to escalate the situation. You want to avoid escalation if possible as that would put you in a worse financial position. 

Creditors are people too. They will likely understand your temporary situation and work with you to extend your due date or create a repayment plan. Again, lenders want to get paid at the end of the day, even if it means the terms need to be adjusted. 

Consider Getting Credit Counselling

A credit counsellor can help you adopt healthy financial habits. Credit counselling can help you budget, create a debt repayment plan, and control spending among many other things. A credit counsellor can also help you get through short term financial hiccups such as a financial emergency.

Why Payday Loans Can Be Harmful

Before we look at some alternatives to payday loans, let’s understand why payday loans can be dangerous.

  • Predatory in nature – Many payday lenders out there prey upon borrowers who they know will end up having to repeat the payday loan cycle, which means they will be collecting more interest with every loan taken out. Borrowers need to be on the lookout for these types of lenders, who will approve anyone for a loan, despite their credit or financial status.
  • High costs – As mentioned, the interest rates charged on payday loans are generally very high. In fact, they can be so high that they make these loans extremely expensive and nearly impossible to repay in full by their due date.
  • Easy to get, hard to pay back – Just about anyone with a bank account can get their hands on a payday loan, but not everyone will necessarily be able to repay the loan amount, plus interest. When the interest amount is tacked onto the original loan amount, the total number can be difficult to repay.
  • Payday loan cycle – As noted earlier, there is always the risk of getting stuck in a payday loan cycle. If you are unable to repay the payday loan when it’s due, you may find yourself needing to borrow again. But this time, you’re paying high-interest rates on the original loan amount, plus the interest portion on the original loan. As such, the amount you need to borrow can incrementally increase, trapping you in a financial hole that you may not be able to get out of without outside intervention.

Are There Any Low Interest Payday Loans Available In Canada?

One of the key features of a payday loan is its high-interest rates. Depending on the province you live in, it can cost between $15 – $25 per $100 you borrow. That’s equivalent to 391.0% – 651.8% APR. However, in Quebec, payday lenders can only charge an annual rate of 35%. This rate makes it unprofitable for payday lenders to operate in Quebec, so it can be difficult to find one.

Thankfully there are alternatives to payday loans. Instead of looking for a low interest payday loan, you can try using an alternative form of financing. Let’s explore your alternatives further below. 

Do You Need More Drastic Debt Relief?

If you’re looking to take out a payday loan because the majority of your monthly income goes toward debt payments, you may want to consider seeking more drastic or specialized debt relief help. A credit counsellor can help you find the right fit. Whether it’s debt consolidation or even a consumer proposal or bankruptcy. 

When Are Payday Loans A Good Idea?

If you’ve explored all of your other options and none of them will work, considering a payday loan should be your option of last resort.

Before proceeding with a payday loan, ensure that you understand the terms and conditions completely. Interest, due dates and other fees are very important to analyze when it comes to payday loans. If you aren’t crystal clear on the loan’s structure, you may run into worse financial trouble or cycle into debt. 

Payday Loan Alternative Option FAQs

Can I get a low-interest payday loan?

In Canada, the province with the lowest interest rate on payday loans is Quebec, with an annual rate of 35%. However, while this is true, many payday lenders do not operate in Quebec as it isn’t profitable enough for them to maintain business at that rate. Other than Quebec, Ontario, Alberta, British Columbia, New Brunswick, and PEI have the next lowest interest rate on payday loans at $15 per $100 borrowed. However, for more affordable options, you should consider a personal loan or even a credit card.

How much can I borrow through a payday loan?

Most payday lenders in Canada will fund up to $1,000 to $1,500. However, the amount you qualify for can be a lot less, depending on your income and debt. Also, the province you live in will affect the amount you can borrow. For example, in Ontario, payday lenders can only provide loans up to 50% of your net income. So you can only be eligible for the $1,500 if you make $3,000 after taxes.

How much would a payday loan cost?

In Ontario where payday loans cost $15 per $100 borrowed, a $300 loan with a term of 14 days would cost $345. Similarly, in Nova Scotia, where payday lenders can charge $19 per $100 borrowed, the same loan would cost $357.

What happens if I miss my payday loan?

If you fail to repay your payday loan, the lender could eventually sell the debt to a collection agency. This debt collector will make every effort to get you to pay back the loan. You may also risk litigation from the lender.

Getting Out Of A Financial Emergency

Financial trouble happens to the best of us. Do what you can to handle the situation effectively without turning to payday loans. If you need to use a payday loan, be sure to pay it on time and in full to avoid worse repercussions. But, if you’re looking for an affordable and effective alternative to a payday loan, we can help. Whether you want to be contacted by an installment loan provider or are looking for more information about debt-relief options, Loans Canada has the options you need.


Veronica Ott avatar on Loans Canada
Veronica Ott

Veronica is a writer who specializes in creating unique and educational personal finance content. She has extensive experience writing blog posts for companies in the financial sector. Veronica's background is in accounting as she graduated from Western University in 2017 with a degree in accounting. She is passionate about using her accounting expertise to help others with their personal finance questions and issues and enjoys using her writing to educate Canadian readers. When Veronica is not writing, she enjoys film, reading, travelling, going to the gym, and listening to music.

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