Every day, Canadians all across the country deal with financial emergencies: their cars break down, they have to take expensive last-minute trips to deal with family crises, and they lose their jobs. All of these debts and expenses 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||Plus The Provincial Missed Payment Penalty||Total Cost Plus 15% Interest|
|Newfoundland and Labrador||$14||$570||$570||$655.50|
|Prince Edward Island||$15||$575||$615||$707.25|
If you’re unable to make the payment, you’ll be charged a penalty fee which can cost up to either $0, $20, $25 or $40. When that happens you’ll be charged interest on the amount you owe + the penalty, which can almost double the amount you borrowed.
Quebec is different. Quebec has a maximum annual interest rate (AIR) of 35% on payday loans.
Where Can You Get An Online Payday Loan In Canada?
|Loan Amount||Interest Rate||Term||Province Availability|
|Up to $1,000||Max 32%||Max 90 days||All of Canada||Learn More|
|$500 - $12,500||19.99% - 34.99%||12 - 60 months||BC, AB, SK, MB, ON, NB, NS, PEI, NL||Learn More|
|Up to $1,500||Varies by province*||Max 62 days||BC, AB, MB, ON, NB, NS, PEI||Learn More|
|$120 - $1,500||Varies by province*||Max 62 days||BC, AB, SK, MB, ON, NS||Learn More|
|$500 - $750||Varies by province*||90 to 120 days||BC, AB, ON, PEI||Learn More|
|Up to $1,500||Varies by province*||Max 62 days||BC, AB, SK, MB, ON, NB, NS, PEI||Learn More|
|Up to $1,500||Varies by province*||Up to 62 days||BC, AB, ON||Learn More|
|$50 - $1,500||Varies by province*||14 days||BC, AB, SK, MB, ON, NS||Learn More|
|$50 - $1,500||Varies by province*||Up to 31 days||BC, ON, NS||Learn More|
|$200 - $1,500||Varies by province*||Next payday||BC, AB, SK, NS, YT, NT, NU||Learn More|
|Up to $1,500||Varies by province*||Next payday||BC, ON||Learn More|
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 they have no 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.
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 from $20 – $40 depending on the province you live in.
Maximum Cost Of A $100 Payday Loan By Province
|Province||Max cost per $100 borrowed||Max Penalty for Returned Cheque||Cooling Off Period||Loan Rollover or Extension|
|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|
|New Brunswick||$15||$20||48 hours (not including Sundays and holidays)||Not allowed|
|Manitoba||$17||$20||48 hours (not including Sundays and holidays)||Allowed|
|Saskatchewan||$17||$25||Next business day||Not allowed|
|Nova Scotia||$17||$40 (default penalty)||Next business day (or 2 days for online payday lenders)||Not allowed|
|Newfoundland and Labrador||$14||$20||2 business days||Allowed|
|Prince Edward Island||$15||n/a||2 business days||Allowed|
|Quebec||35% AIR||n/a||10 days||Not allowed|
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?
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
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.
Payday Loans FAQs
Why are payday loans so expensive?
What do I need to get approved for a payday loan?
What happens if I can’t pay back a payday loan?
Are payday loans bad?
How To Apply For A Payday 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.