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A payday loan is a lump sum of cash (usually $100 – $1,500 maximum) that you can borrow in most parts of Canada. Normally, this type of loan comes with fast approval, easy requirements, and a short repayment term of 14 days following the deposit of your funds. One of the most important points to note is that payday loan interest rates in Canada typically range from 300% APR up to 500%. They are one of the most expensive forms of financing.

Calculating How Much Payday Loans Really Cost Based On Payday Loan Interest Rates In Canada

A payday loan should typically only be used as a last resort. In other words, when you’re dealing with bad credit, a pressing debt or a lack of savings. While payday lenders advertise these loans as cheap and easy, they are anything but. 

The maximum borrowing rate that payday lenders can legally charge varies by province. Here’s a chart to show you the real costs of payday loans:

ProvinceMax Amount Lender Can Charge Per $100APR Equivalent
Alberta$15391.07%
British Columbia$15391.07%
Manitoba$17443.21%
New Brunswick$15391.07%
Newfoundland & Labrador$14365.00%
Nova Scotia $17443.21%
Ontario$15391.07%
Prince Edward Island$15391.07%
Saskatchewan$17443.21%
*note: Payday lenders in Quebec can only charge 35% AIR on payday loans.

Calculating The Cost Of A Payday Loan

According to the payday loan interest rates above, here’s what you could pay to borrow different-sized payday loans with a 14-day term in Canada:

Province$100$300 $500$700$1,000$1,500
AB, BC, ON, PEI, and NB$115$345$575$805$1,150$1,725
NL$114$342$570$798$1,140$1,710
MB, NS, and SK$117$351$585$819$1,170$1,755

Other Costs To Consider When You Can’t Pay Back Your Payday Loan

Ultimately, if you can’t afford to pay back your full payday loan by the time your term finishes. The lender could tack on some hefty late penalties too, such as:

  • Fee For Dishonored Cheque or Pre-Authorized Debit – When making your loan payment, most lenders accept cheques or pre-authorized debits. However, if your cheque bounces (gets returned) or your pre-authorized debit doesn’t go through, your payday lender can charge you a fee of up to $20 – $25. 
  • Non-Sufficient Funds (NSF) or Overdraft Fee From Your Bank – If there isn’t enough money in your bank account when a payday lender tries to withdraw your payment, you may also get penalized by your financial institution. Some banks and credit unions charge NSF fees of up to $50 unless you have overdraft protection. 
  • Additional Interest On Unpaid Debt – In some provinces, payday lenders can charge you an additional interest on the amount you still owe. For example, in BC, payday lenders can charge you an extra APR of 30% if you don’t pay on time. When coupled with your original rate, that APR can drive up the final cost of your payday loan.

What’s The Maximum Penalty Fee A Payday Lender Can Charge You For Insufficient Funds And Bounced Cheques?  

Here’s a table that shows the maximum penalty fee that a payday loan lender can legally add to your debt for a pre-authorized payment that doesn’t go through or for a returned cheque. 

Maximum Cost Of A $100 Payday Loan By Province

ProvinceMax cost per $100 borrowed Max Penalty for Returned ChequeCooling Off PeriodLoan Rollover or Extension
Ontario$15n/a2 business daysNot allowed
British Columbia$15$202 business daysNot allowed
Alberta$15$252 business daysNot allowed
New Brunswick$15$2048 hours (not including Sundays and holidays)Not allowed
Manitoba$17$2048 hours (not including Sundays and holidays)Allowed
Saskatchewan$17$25Next business dayNot allowed
Nova Scotia$17$40 (default penalty)Next business day (or 2 days for online payday lenders)Not allowed
Newfoundland and Labrador$14$202 business daysAllowed
Prince Edward Island$15n/a2 business daysAllowed
Quebec35% AIRn/a10 daysNot allowed

Non-Financial Costs To Consider With Payday Loans

Before you borrow a payday loan anywhere in Canada, there are some other important costs that you should consider, including but not limited to:

  • Damage To Your Credit Score – While payday lenders do not require credit checks or report payments to the credit bureaus, they can impact your credit scores, if you default on your loan. If you do not pay your payday loan on time, the lender can sell your debt to a collection agency, which can negatively affect your credit scores. If you want to keep an eye on your credit. Check out a free credit score provider like CompareHub.
  • Legal Consequences If you keep avoiding your payday loan debt, the lender or collection agency may decide to file a lawsuit against you. Not only could this lead to your wages being garnished, but you might also be forced to enter a debt management program or declare bankruptcy when you owe enough money.

All of these consequences can have a serious negative impact on your creditworthiness and finances as a whole. 

Cost Of A Payday Loan vs. Alternative Loan Options

Remember, payday loan interest rates in Canada are high. This is one of the main reasons to avoid them unless they’re absolutely necessary. For instance, if your only problem is bad credit, you’re probably better off using a credit card cash advance or a bad credit personal loan

Example #1 – Payday Loan 

  • Let’s say you take out a $1,000 payday loan in Ontario
  • The cost of a payday loan in Ontario is $15 per $100 borrowed
  • This gives you a total interest cost of $150 on $1,000 borrowed
  • You also agree to a standard payment term of 14 days
  • The total cost of the payday loan equals $1,150

Example #2 – Credit Card Cash Advance

  • You borrow the same $1,000 and pay it back within 30-days
  • The provider charges you 23% APR, plus a 4% service fee
  • Your total APR charges add up to $18.90, with a $40 fee (4% of $1000)
  • Total starting cost of credit card cash advance = $1,058.90

Example #3 – Personal Loan 

  • You borrow the same $1,000, this time with a 6-month term
  • You choose a monthly payment plan, which means 6 installments of $179.03
  • Due to bad credit, you pay an APR of 25% 
  • Your total APR charges add up to $74.17 over 6 months
  • Total starting cost of personal loan = $1,074.17   

As you can see, the cheapest product is the credit card cash advance, however, the personal loan allows you to pay off your $1000 over a longer period. Moreover, even though the personal loan payment term is longer, it ends up being much cheaper than the payday loan too. So, if you have other options, avoiding payday loans is a safer idea overall.

Consider a personal loan instead

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How To Choose A Payday Lender

If you absolutely need to borrow a payday loan, make sure you do research and find a lender that’s not only trustworthy but also charges rates and fees you can afford. Here are some of the main things to look out for when choosing a payday lender: 

  • Complete Information – In Canada, it’s illegal for lenders to charge hidden fees or fail to disclose their loan costs in a clear way. If a payday lender avoids your questions, refuses to tell you about the potential costs or doesn’t display those kinds of details in their contracts and advertisements, don’t sign up with them. 
  • Contactability – Your lender should also be easy to contact. A legitimate lender will always provide their phone number, address and email without hesitation. It’s even better if they have a live chat feature or 24/7 customer service line. If they don’t provide those elements online or over the phone, it can be a red flag.   
  • Quick Approval – Good payday lenders will also have easy requirements and speedy deposit times of 1 or 2 business days maximum. After all, payday loans are meant for emergencies. If you’re really in a bind, you might want to visit a physical payday loan store. That way, you can get your funds on the same day.          

Conclusion

Payday loans can seem like the answer to your prayers when you’re down on your luck and need money in a hurry. But before you accept the money, you should think about the real cost of taking out that loan. More often than not, an installment loan is so much cheaper and a far better alternative that will keep you from falling into a continuous cycle of debt.

Frequently Asked Questions

Should I use an installment loan or a payday loan?

Installment loans are a cheaper and more realistic alternative when you need money in a hurry. They allow you to borrow more money, yet they have lower interest rates and lower payments than payday loans. The best part is that you can pay them back over an extended period of time instead of in one lump payment.

What interest rates do payday lenders charge?

Depending on where you live and what company you’re dealing with, the interest is typically between $15 and $17 for every $100 borrowed.

What do I need to get a payday loan?

If you want a payday loan, you just have to be at least 18, have a job, and have a bank account. If you don’t have a job, some lenders will lend to you if you receive other forms of income such as social assistance, EI, CPP, and CCB, because it’s a guaranteed income. 
Caitlin Wood, BA avatar on Loans Canada
Caitlin Wood, BA

Caitlin Wood is the Editor-in-Chief at Loans Canada and specializes in personal finance. She is a graduate of Dawson College and Concordia University and has been working in the personal finance industry for over eight years. Caitlin has covered various subjects such as debt, credit, and loans. Her work has been published on Zoocasa, GoDaddy, and deBanked. She believes that education and knowledge are the two most important factors in the creation of healthy financial habits. She also believes that openly discussing money and credit, and the responsibilities that come with them can lead to better decisions and a greater sense of financial security.

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