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Payday Loans
Every day, Canadians all across the country deal with financial issues and emergencies, their cars break down, they have to take expensive last-minute trips to deal with family emergencies, and they lose their jobs. All of these things can be financially straining, leading to the need for immediate cash.
That’s when a payday loan may seem like an extremely convenient way to borrow a small amount of money as quickly as possible.
What Is A Payday Loan?
A payday loan is a small, high-cost, short-term loan in Canada. Depending on the lender you borrow from, you’ll be able to borrow as little as $100 to as high as $1,500. Like its name “payday”, repayment is due on the borrower’s next payday, which is typically between 14 to 30 days after receiving the loan.
Moreover, payday loans are very easy to qualify for, you simply need a stable source of income and an active bank account. No credit checks are required, making it ideal for those with poor credit. However, while convenient, they do have extremely high interest rates and fees, making them a very costly option. Generally, payday loans should only be relied on as a last resort.
Cost Of Payday Loans
Payday loans are notorious for their high interest rates and exuberant fees. Some carry a 500% yearly interest rate which will inevitably force you to pay more for interest than the original loan amount. Depending on the province you live in, these rates will vary.
Cost To Take Out A Payday Loan In My Province?
To see how much it’ll cost you to take out a payday loan, let’s take a look at this example. You have a payday loan of $500 and you have to pay it back within 14 days.
| Province | Maximum Cost per $100 | Total To Pay Back | Missed Payment Penalty (assuming a $40 penalty) | Total Cost After Penalty |
| British Columbia | $15 | $575 | $615 | $707.25 |
| Alberta | $15 | $575 | $615 | $707.25 |
| Ontario | $15 | $575 | $615 | $707.25 |
| New Brunswick | $15 | $575 | $615 | $707.25 |
| Saskatchewan | $17 | $585 | $625 | $731.25 |
| Manitoba | $17 | $585 | $625 | $731.25 |
| Nova Scotia | $19 | $595 | $635 | $755.65 |
| Newfoundland and Labrador | $21 | $605 | $645 | $780.45 |
| Prince Edward Island | $25 | $625 | $665 | $831.25 |
If you’re unable to make the payment, you’ll be charged a penalty fee which can cost $40. When that happens you’ll be charged interest on the amount you owe + the penalty, which can almost double the amount you borrowed.
What Is The Payday Loan Cycle?
The payday loan cycle is one of the worst financial situations to be in. You are pulled into the cycle when you can’t afford to pay back your first payday loan. This happens because payday loans need to be paid back by your next paycheque. Let’s say you take out a $500 payday loan today because you have no money and only get paid next Friday. But on the following Friday, the payday loan company takes back their $500 plus interest and now you have no money again and you need to pay rent and buy groceries. This is where the cycle starts because now you need to take out another payday loan to pay rent and buy groceries.
Can You Get A Payday Loan With Bad Credit?
Most payday loan companies do not run a credit check when they review a loan application. This means that having bad credit will not affect your chances of being approved for a payday loan in most cases. With a payday loan, you are limited to how much money you can borrow, however. Most payday loan companies will offer you approximately $100 to $1,500, depending upon many different requirements that you must follow. In many cases, you will have the money in your hand within an hour if you qualify.
Pros And Cons Of Payday Loans In Canada
Like any other credit product, there are both positives and negatives to payday loans. Depending on your financial situation and need, a payday loan can be a good or bad option.
Payday Loan Pros
- Online Payday Loans – There are hundreds if not thousands of online payday lenders in Canada. You can apply and get funded without having to step outside your home. Similalry, if you prefer applying in-person, you can find many local payday lenders near you.
- E-Transfer Payday Loans – Many payday lenders will fund you the money via e-transfer for extra fast funding.
- Weekend Payday Loans – There are many payday lenders who operate during the weekends. If you need cash on a Saturday or Sunday, it’s possible through various payday lenders.
- No Credit Checks – One of the main appeals of payday loans is their lack of credit checks. Many Payday lenders accept Canadians who have bad credit or have previously gone through a bankruptcy or consumer proposal.
- Cooling Off Period – In Canada there are numerous laws and regulations to protect consumers from predatory lending practices. Generally, you’ll have 1-2 days to cancel the payday loan without penalty, if you decide against using it.
Payday Loan Cons
- Payday Loan Cycle – One of the dangers of payday loans is the payday loan cycle. Many Canadians get trapped into the payday loan cycle because they are unable to repay their first loan.
- High Cost – As mentioned before, payday loans have extremely high interest rates and fees. These costs can quickly add up, making it unaffordable.
- Predatory Lenders – The payday lending industry is littered with predatory lenders and scammers who prey on borrowers with limited resources and options.
Where Can You Get An Online Payday Loan In Canada?
| Amount | APR | Term (Days) | Funding Time | ||
| iCash | Up to $1,500 | 15% – 23% | – | Within 24 hours | More Info |
| Mr.Payday | $100 – $1,500 | 15%- 17% | 14 – 31 | Within 24 hours | More Info |
| Go Day | $100 – $1,500 | 15% – 25% | 14 – 30 | Within 24 hours | More Info |
What Are Your Rights As A Payday Loan Borrower
There are many payday laws and regulations placed to protect the borrower from unethical lending practices.
- Cooling Off Period – This is a law that allows you to change your mind about using a payday loan, without any penalty.
- Loan Rollovers – Extending or renewing a payday loan is not allowed in most provinces.
- NSF Fee – If you’re unable to pay your loan, there’s usually a fee added to your loan. This can range between $20 – $40 depending on the province you live in.
| Province | Max cost per $100 borrowed (Max Interest Rate) | Max Penalty for Returned Cheque | Cooling Off Period | Loan Rollover |
| Ontario | $15 | n/a | 2 business days | Not allowed |
| British Columbia | $15 | $20 | 2 business days | Not allowed |
| Alberta | $15 | $25 | 2 business days | Not allowed |
| Manitoba | $17 | $20 | 48 hours (not including Sundays and holidays) | Allowed |
| Saskatchewan | $17 | $25 | Next business day | Not allowed |
| Newfoundland and Labrador | $21 | $20 | 2 business days | Allowed |
| Nova Scotia | $19 | $40 (default penalty) | Next business day (or 2 days for online loans) | Not allowed |
| New Brunswick | $15 | $20 | 48 hours (not including Sundays and holidays) | Not allowed |
| Prince Edward Island | $25 | n/a | 2 business days | Allowed |
Note: Payday loans are extremely expensive and can lead to a cycle of debt if you’re unable to repay the full amount borrowed. To Learn about the payday loan laws in your province, click here.
What Factors Should You Consider Before Applying For A Payday Loan
Before you decide to apply for a payday loan, it is important that you consider the following six factors. These will help you determine if a payday loan is the right option for you.
- Your Current Financial Situation – Are you currently struggling to make ends meet? Do you already have a significant amount of debt that you struggle to keep up with? Unfortunately, while a payday loan may seem like a great solution, they usually only increase financial hardship.
- Available Alternatives – Are there any alternative options available to you? Can you borrow money from a friend or family member? Can you apply for a more affordable installment loan instead?
- The Two Week Term – Payday loans must be repaid when you receive your next paycheque, typically within two weeks. Will you have the money to repay the loan, plus interest, in two weeks.
- Amount Borrowed – Is the amount you’re able to borrow enough to actually help with your financial issues? Or, will it only add to your debt levels and make dealing with necessary expenses even more difficult?
- Interest Rate – Before signing on the dotted line, ask about the APR associated with the payday loan. Typically, payday lenders only advertise the two-week fee. Payday loan APRs are often 400% or more.
- Penalties & Fees – What are the additional fees associated with taking out a payday loan? Are there excessive or even illegal administrative fees? Will you be significantly penalized for making a late payment?
Learn more about how to apply for a loan in Canada.
40% of respondents did not know that a payday loan is the most expensive way to borrow.
— Financial Literacy vs. Financial Well-Being And Credit-Constrained Canadians Survey
When Is A Payday Loan A Good Option?
While our number one recommendation is for Canadian consumers to avoid payday loans if possible, we understand that they are certain situations where taking on a payday loan is the only option.
- Emergency Situations – Emergency situations where additional money is needed as soon as possible, a payday loan could be the best choice simply because of its quick approval times.
- You Know You Can Pay It Off – If you could guarantee that you would be able to repay the loan by your next paycheque, then choosing a payday loan to cover an important expense can be a good choice.
- You Have No Alternatives – If you’ve exhausted all other alternative options and are struggling to get a loan due to bad credit and negative remarks like a previous bankruptcy and debt settlement, then a payday loan can be a good option.
Alternatives To Payday Loans
If you’ve been thinking about taking out a payday loan or if ever in the future you need access to money quickly, please consider any of the following options before you decide to take out a payday loan.
- A small installment loan
- A line of credit
- Tap into your home equity
- Borrow from a friend or family member
Amount APR Term (Months) Type of Loan 
Up to $35,000 26.99% - 39.99% 6 - 60 Secured & unsecured More Info 
Up to $15,000 29.99% - 46.96% 9 - 60 Personal loan More Info 
$5,000 - $35,000 5.9% - 45.9% 12 - 60 Personal loan More
Info 
$1,000 -$35,000 5.99% - 29.19% 36 – 60 Persona loan More Info 
Up to $5,000 19.9% - 45.9% 3 - 36 Personal loan More Info 
Up to $10,000 43% 36 - 60 Guarantor loan More Info
Should You Get A Payday Loan Or A Personal Loan?
The idea of a payday loan can be very appealing especially if your current financial situation isn’t so great. But what payday loan providers don’t advertise is that once you take out one loan you can be sucked into a cycle that will completely ruin your finances. Small personal loans, on the other hand, are just as simple and quick as payday loans but they come with significantly fewer problems.
Interest rates associated with small personal loans are significantly less than those of a payday loan. Moreover, personal loans come with installment payment plans where you’re able to pay off the loan with small affordable payments over an extended period of time, unlike payday loans where the full balance needs to be paid back in one payment.
Generally, an installment loan is a better choice as it means you won’t be bogged down with the stress of making one huge payment but instead, you’ll have a longer payment period and make smaller payments.
Personal Loan Calculator
Payday Loans FAQs
Why are payday loans so expensive?
Payday loans are expensive because the full amount borrowed must be repaid within 2 weeks and they typically have APRs of 500% or more. What do I need to get approved for a payday loan?
One of the main reasons why payday loans are so popular is because of how easy it is to get approved. Applicants need to be the age of majority in their province, have a permanent address, a bank account, and a steady income.What happens if I can’t pay back a payday loan?
As with any type of loan, if you fail to pay back your payday loan, typically you will be charged a late fee and may even have your account sent to collections. Are payday loans bad?
Payday loans are one of the most expensive forms of financing, they are designed to trap you in the payday loan cycle of debt. Because the full amount must be repaid in 2 weeks, most borrowers who are already struggling financially, won’t have the money necessary to do so. This can lead to more debt, credit score problems, and ultimately a cycle of debt that is next to impossible to get out of. How To Apply For A Payday Loan?
Applying for and getting approved for a payday loan is a very simple process. All you need to do is request a loan from a payday lender, either in person or online, have a bank account, be at least 18 years old, and be employed or have some form of guaranteed income. Have all that and you’re basically guaranteed a loan.
Looking for An Alternative to Payday Loans?
If you’re interested in more information about the loan options available to Canadians looking to stay away from the payday loan cycle, Loans Canada can help.
Interest that is earned by an individual, but not yet received. Or, interest that is owed, but not yet paid. Interest is typically earned or payable after a certain period of time, such as a month or a year, which is why it can accrue. The interest rate you pay over a full year in exchange for borrowing. An APR is expressed annually but is typically charged monthly. You can determine the total monthly interest you’ll pay on debt by multiplying the borrowed amount by the APR and then dividing by 12. Anything that has financial value is considered an asset. In order to reap the benefits of an asset, you must also own it as an individual or business. When it comes to debt, usually only real estate, jewellry, vehicles, and investments are considered assets. An individual or entity that takes something (for example money or equipment) with the intention of returning it to the original owner. When the borrower it taking out a loan, there is usually an agreement involved and applicable interest. A cash withdrawal from a credit card. Cash advances are a very expensive form of financing as the interest rate on the borrowed amount is higher and there is often a flat fee. In addition, interest becomes effective immediately after you withdraw the cash, instead of after the balance due date. An individual who shares an obligation of something that was borrowed with one or more people. All co-borrowers listed on an agreement are fully responsible for repaying the obligation. Any asset that is used to secure debt. In the event that the borrower defaults on the loan, the lender has the right to seize the asset and sell it to cover the owed amount. Collateral is also commonly referred to as security. An individual who agrees to make your loan payments and otherwise be responsible for your debt in the event that you default on the loan. Using a cosigner is a popular option for individuals who have trouble securing debt on their own. All of the costs a borrower incurs when borrowing an asset or money. Examples of borrowing costs include legal fees, interest, loan origination fees and penalties. An individual or entity that owes a sum of money to a creditor. Failure to pay the minimum payment on a loan or account on or before the agreed-upon payment date. Delinquency is typically categorized in 30, 60, 90 or 120 days since lenders typically have monthly payment cycles. Delinquent accounts may eventually turn into defaulted accounts. An individual who relies on another individual for financial support. Usually, this refers to a family member, common-law partner or spouse who is unable to financially support themselves. The market value of an asset you own less the amount still owed (including any additional fees to sell or repay debts) on the loan used to purchase the asset if any. Equity increases when you pay down the debt as well as when the value of the asset increases. Equity can be calculated at any point in time and is also referred to as lendable value or net value. A payment schedule that breaks up an owed amount of money into several equal amounts, otherwise known as installments, which are paid over an agreed period of time. An amount of money that is borrowed by one entity from another with the expectation that the amount will be paid back. Interest is typically applied on the owed amount. The ratio of what amount was borrowed to purchase an asset in relation to the market value of that asset. The formula would be: the total amount borrowed for the purchase divided by the total selling price of the asset. The borrowed amount can differ from the selling price if the individual makes a down payment, for example. In general, the lower the LTV, the more favourable the terms of the financing will be. A short term, small loan that a borrower promises to repay on their next pay day. Payday loans are known to be an expensive and risky form of financing that makes it challenging for the borrower to repay and manage. The period of time over which a borrower is obligated to make a payment. Payment periods could be weekly, bi-weekly or monthly, sometimes even longer. The prime rate advertised by a lender is typically based on the Bank of Canada’s interest rate that is set each night, which may change at any time. The total remaining balance of a loan, without considering interest and other fees. A loan that is secured by an asset known as collateral or security. In the event that the borrower defaults on the loan, the lender has the right to seize the asset securing the loan and sell it to repay the owed amount. This type of loan bears less risk for the lender, but more risk for the borrower. A loan that is not secured by an asset known as collateral or security. In the event that the borrower defaults on the loan, the lender will not have the opportunity to seize the collateral or security to repay the owed amount. This type of loan bears more risk for the lender, but less risk for the borrower. Loan Glossary
Terms
Accrued Interest Annual Percentage Rate (APR) Assets Borrower Cash Advance Co-Borrower Collateral Cosigner Cost of Borrowing Debtor Delinquency Dependent Equity Installments Loan Loan-to-Value Ratio (LTV) Payday Loans Payment Period Prime Rate Principal Balance Secured Loan Unsecured Loan
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