Short term loans are useful when you need money quickly and want to be out of debt fast. The payback period is short, which means you clear the balance sooner than you would with a longer loan.
The interest rates are higher than what you see for a mortgage, but do not let that fool you. A shorter payback period can mean you pay less in total interest over the life of the loan, even at a higher rate.
Short term loans are built to help you through temporary financial situations. Like other same day loans, they are designed for fast funding, so you can have the money in as little as 24 hours after you are approved.
When life is not going your way and your finances or your credit score need help, a short term loan can help you get back on track. Whether you were caught off guard by a repair, your emergency fund is low, or you are simply trying to get ahead of this month’s bills, a short term loan is one of several emergency loans that can spread out the cost and make it more manageable.
Key Points
1. A short term loan is a small lump sum you repay over a short period, usually 1 to 2 years, with fast funding often within 24 hours.
2. The main types are short term installment loans, credit card cash advances, and payday loans. Installment loans are the safest and most affordable of the three.
3. As of January 1, 2025, the federal criminal interest rate is 35% APR. Payday loans are the exception, and are capped separately by each province (about $14 per $100 in most).
4. You can get a short term loan with bad credit, but you will usually pay a higher rate for a smaller amount, so compare offers before you sign.
What Are Short Term Loans?
A short term loan is a specific amount of money that you borrow, either online or in person, from almost any lender in Canada, and repay over a short period. Short term loans usually involve less money than other installment based loans, and the average repayment term lasts only 1 to 2 years. You receive the money as a lump sum and pay it back in equal installments with interest.
When you are approved for a short term loan, the money is deposited directly into your bank account as a lump sum. You then follow a plan that lets you repay the loan through equally divided installments with interest.
Where Can You Apply For Short Term Loans In Canada?
Filters
What Are The Best Uses For Short Term Loans?
Short term loans can cover the cost of almost any bill, expense, or emergency you need to handle, including but not limited to:
- Medical emergencies
- Last minute travel expenses
- Car repairs
- Household repairs
- Moving expenses
- Bills
Types Of Short Term Loans In Canada
The conditions of your short term loan will vary depending on where you apply and how qualified you are. In general, there are three types you can apply for. Some lenders also structure these as a short term flex loan, which gives you more control over the size and timing of your payments.
Short Term Installment Loans
Most short term loans you will find are installment based. The full loan sum is separated into installments that you pay off periodically until your plan is complete.
Every borrower has different preferences when it comes to their budget, but short term installment loans can be a good fit for a number of reasons.
- Low Monthly Payments. Short installment loans are spread across 1 to 2 years, which makes payments more affordable for the average borrower.
- Lower Interest Rates. Shorter repayment terms can sometimes lead to lower interest rates.
- Flexible Repayment Frequencies. Under the right circumstances, lenders can adjust the size and frequency of your installments. Many lenders offer options like weekly (52 payments a year), bi-weekly (26 payments a year), semi-monthly (24 payments a year), monthly (12 payments a year), and accelerated (extra or larger payments).
- Fast Approval. Short term installment loans are usually easy to qualify for and provide fast funding. Some lenders offer fast approval short term loans online with same-day decisions.
Credit Card Cash Advance
If you already have a credit card, a cash advance lets you withdraw cash against your credit limit from an ATM or your bank. It is fast and does not require a separate application, which makes it a quick option in a pinch.
The trade off is cost. Cash advances usually charge a higher interest rate than regular purchases, there is often a flat fee per advance, and interest starts adding up the same day, with no grace period. Use this option only for small amounts you can repay quickly.
Payday Loans
In many provinces you can also find a short term loan known as a payday loan. Like a traditional short term loan, this involves a relatively small sum of cash that you can apply for at a physical location or online.
Payday lenders usually offer loans of $100 to $1,500, with much shorter repayment terms. Many provinces now allow terms of up to 62 days, though the classic payday loan is due on your next payday, often within 14 days. The only documents required for approval are government identification that proves you are at least the age of majority in your province, along with proof of permanent residency, steady income, and an active bank account. Other benefits of a payday loan include:
- Easy Approval. They are easy to get approved for compared to other credit products.
- No Credit Check. Payday loans are often used by people with bad or no credit, since they do not require a credit check. Borrowers with bad credit, debt problems, low incomes, and recent discharges from consumer proposals or bankruptcies usually will not have much trouble qualifying.
- Fast Funding. Loan funds are typically deposited within 1 to 2 business days, which makes them a possible solution for smaller financial emergencies.
Beware Of The Costs Associated With A Payday Loan
When you are deciding whether to apply for a payday loan, it is important to consider all of the costs involved.
Interest rate. Payday loans are extremely expensive. In most provinces, the cost is capped at about $14 per $100 you borrow, though a few provinces allow more (Saskatchewan permits up to $17 per $100).1 Because the term is so short, even a capped fee works out to a very high annual rate, often around 300% to 400% or more.
Fees. In many provinces, the full loan cost is automatically debited from your bank account on the due date. If you do not have enough funds, you can be hit with a non-sufficient funds (NSF) fee.
Rollovers. Some provinces allow rollovers, which means you take out a second loan before the first one is repaid. This stacks cost on top of cost.
The payday loan cycle. Payday loans are known for trapping borrowers in a cycle of repeat borrowing. These risks can lead to serious debt problems, especially if your finances are already stretched.
Note: Payday Loans Are A Last Resort
Payday loans are extremely expensive and can lead to a cycle of debt if you cannot repay the full amount on time. Unlike most other loans, they are exempt from the 35% federal interest rate cap and are regulated province by province. Before you apply, it is worth checking the payday loan rules in your province and looking at the cheaper alternatives further down this page.
What Is The Maximum Interest Rate On A Short Term Loan?
As of January 1, 2025, the federal government lowered the criminal interest rate from about 47% to 35% APR.2 This is the most a lender can legally charge on most loans in Canada, including short term installment loans. It is why you will see installment lenders advertise a maximum rate around 34.99%.
Payday loans are the main exception. Licensed payday lenders in provinces that regulate them are exempt from the 35% cap and are limited by provincial rules instead, which is why their cost is set as a fee per $100 rather than an APR.3 This is the single biggest reason a payday loan can cost so much more than a short term installment loan for the same amount of money.
Which Short Term Loan Option Should You Choose?
Every borrower’s financial situation is different, so the short term loan you choose should be based mainly on what you can afford in terms of your repayment plan.
Choosing Between Your Options
Short Term Installment Loan: A safer, more practical choice when you have strong finances, good credit, and can afford the payments. It also works better for larger expenses, or costs you want to pay off gradually.
Credit Card Cash Advance: A quick fix for a small amount if you already have a card and can repay it fast, since interest starts the same day.
Payday Loan: The most expensive and riskiest option. Consider it only for a small, urgent expense when you have exhausted every cheaper choice.
How Much Does A Short Term Loan Cost?
The total cost of a short term loan depends on the amount you borrow, your interest rate, and your term length. Here is a simple example to show how the numbers compare.
Say you borrow $1,000. With a short term installment loan at 20% APR repaid over 12 months, you would pay roughly $110 in total interest. Borrow the same $1,000 as a payday loan at $14 per $100 due in two weeks, and the fee alone is $140, and that is for just 14 days rather than a full year.
The takeaway is that a short term installment loan is almost always cheaper than a payday loan for the same amount, even though both are considered short term borrowing. Always ask the lender for the total cost of borrowing, not just the monthly payment, before you sign.
Eligibility Requirements To Get A Short Term Loan
- An Active Bank Account. Lenders generally require an active bank account to deposit the money and to withdraw your payments.
- Personal Identification. Lenders need proof of identification and proof of residence, so you will need to provide a valid address and a government issued photo ID.
- Employment Stability. This varies from lender to lender, but some lenders may ask for proof of employment. Lenders typically want to see that you have been employed for at least three months.
- Proof Of Income. Lenders will also ask for bank statements and pay stubs to verify your income. They may use your bank statements to check your debt-to-income ratio.
- Collateral. Some lenders require collateral to secure the loan. You can also secure a loan by adding a cosigner or guarantor to your application.
Alternatives To Short Term Loans
A short term loan is not always the cheapest way to cover a shortfall. Depending on your situation, one of these options may cost you less:
- A personal line of credit. You borrow only what you need, up to a set limit, and pay interest only on the amount you use. Rates are usually lower than a short term loan.
- A low interest credit card. For a small expense you can repay within a billing cycle, a regular credit card purchase avoids the cost of a cash advance.
- A cash advance app. Apps like Bree offer small, interest free advances against your next paycheque, which can be cheaper than a payday loan for a small gap.
- Borrowing from family or friends. Not always possible, but it is usually the lowest cost option if it is available to you.
- Asking for more time. Some billers, landlords, and utility companies will set up a payment plan or extend a due date if you contact them before the bill is late.
If your need is not urgent, taking a little time to compare these alternatives can save you a lot in interest.
How To Choose A Short Term Loan Lender
Not every lender is equal, and the right one depends on how much you need, how fast, and what your credit looks like. Keep these points in mind as you compare:
Pros And Cons Of Short Term Loans
The decision to apply for a short term loan can be a hard one, since there are many factors to weigh. To help you decide, take a look at the following pros and cons.
Pros Of Short Term Loans
- Approval is easier and quicker than most other loan types.
- Applying with healthy finances can earn you better rates and conditions.
- Short terms and small loan sums mean there is less chance of defaulting.
- Completing your installments is good for your credit report and credit score.
- Small expenses and financial emergencies are easily covered by this product.
Cons Of Short Term Loans
- Interest rates may be higher due to the short repayment terms.
- Bad credit loans are smaller, more expensive, and less adjustable.
- Improper research can lead to predatory rates, scams, and identity theft.
- Defaulting on your installments can result in serious debt and credit damage.
Watch Out For Short Term Loan Insurance Scams
If you are about to apply for a short term loan, especially one aimed at bad credit, it is important to research your lender to confirm they are a legitimate business.
Unfortunately, there are predatory organizations and scam artists that rely on your need for a loan. One way they try to fool you is by claiming you have to pay for “loan insurance” before they can approve you.
In reality, no legitimate lender will ever ask for payment before your loan is deposited, because it is illegal to do so in Canada. If a supposed lender ever tries this, or seems untrustworthy for any other reason, avoid them.
Will Applying For Short Term Loans Affect My Credit?
Depending on how you handle your loan, your credit may be affected negatively or positively.
- Hard Inquiries. When you apply for any credit product, a record of the event shows up on your credit report as a hard inquiry, which causes your credit score to drop by a few points. That is why it is not a good idea to apply for too many loans in a short time.
- Full On-Time Payments. As mentioned above, completing your installments on time affects your credit score in a positive way.
- Missed Payments. Defaulting with a late, incomplete, or missed payment has the opposite effect, and drops your score each time.
The health of your credit is very important when you apply for future credit products, since lenders use it to judge how much they will let you borrow and what interest rate you qualify for. The better your credit score, the more creditworthy lenders consider you, so your loan can be larger and more affordable.
Need A Short Term Loan In Canada?
If you are looking to solve a financial issue with a short term loan, do not hesitate to contact Loans Canada. We can set you up with the best lenders and rates in your area. You can also compare the best online loans in Canada, or look specifically at online payday loans if that fits your situation better. Call us today or check out our website for more information.
Short Term Loan FAQs
You can qualify for a short term loan without a job through certain lenders that accept non-traditional forms of income. If you currently receive the CCB, CPP, EI, or another form of government assistance, you may still qualify for a short term loan using that income.
Yes. If you have bad credit or unhealthy finances, you can still get approved for a short term loan. Some lenders in Canada specialize in bad credit loans and will not perform a credit check when you apply. That said, bad credit can make applying harder, since lenders see it as a sign of a greater chance of default. You are also more likely to be offered a higher rate, a smaller loan, and a less flexible repayment plan.
You can apply for a short term loan online or in person with an alternative lender or a bank. Online lenders generally have quicker underwriting and more flexible requirements, which makes approvals fast and easy. You can also request a loan quote to compare offers and choose the one that best meets your needs.
Many online lenders can approve you the same day and deposit the funds within 24 hours to 2 business days. Payday loans are often the fastest, but they are also the most expensive option.
As of January 1, 2025, the federal criminal interest rate is 35% APR, which is the most a lender can charge on most loans in Canada. Payday loans are the exception and are capped by each province instead, usually at about $14 per $100 borrowed.
References
- Financial Consumer Agency of Canada. (2025). Payday loans. Government of Canada. https://www.canada.ca/en/financial-consumer-agency/services/loans/payday-loans.html
- Department of Justice Canada. (2024). Criminal Interest Rate Regulations (SOR/2024-114). https://laws-lois.justice.gc.ca/eng/regulations/SOR-2024-114/
- Government of Canada. Criminal Code, s. 347.1 (payday loan exemption). https://laws-lois.justice.gc.ca/eng/acts/c-46/section-347.1.html
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*Interest rates are subject to change. Actual Annual Percentage Rate (APR) varies based on the province of residence and individual factors like credit details and loan amount. The interest rate on an unsecured personal loan is 31.99% in BC.
†On approved credit. Terms and conditions apply. Interest rates vary by province/territory and from customer to customer based on factors like credit score and borrowing history. See Fairstone’s website for details.
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