The Difference Between Personal, Private, And Payday Loans In Canada

The Difference Between Personal, Private, And Payday Loans In Canada

Written by Lisa Rennie
Fact-checked by Caitlin Wood
Last Updated November 17, 2022

Personal loans, private loans, and payday loans, why are there so many names for what seems like the same financial product? The easiest answer to that question is that each of these loans is a unique product meant to provide consumers with the funding they want depending on what their needs are. 

With so many different loan products on the market, it can be a confusing, stressful, and sometimes impossible process to choose which one best suits your financial needs. Understanding the differences and the pros and cons of these loans and how each one functions is the best way to weigh your options and make the most informed decision. 

Difference Between Personal, Private, and Payday Loans In Canada

 Personal LoanPrivate LoansPayday Loan
Loam AmountUp to $50,00Varies greatlyUp to $1,500
Interest Rate2% – 46%2% – 46%Depends on province
Loan TermUp to 60 monthsUp to 60 monthsUp to 3 months
Credit CheckYesYes, but not alwaysNo
Who Offers It– Banks- Private Lenders – Online Lenders- Alternative Lenders- Credit unions– Online Lenders- Alternative LendersPayday lender
Reports to Credit BureauYes (always ask the lender first)Yes (always ask the lender first)No

Personal Loans

A personal loan is an installment based loan, wherein the lender provides you with a lump sum of cash that you have to repay in installments. Personal loans are typically offered by a bank, credit union or another traditional financial institution. Unlike a car loan or mortgage, a personal loan can be used for any purpose including consolidating high-interest credit card debt or covering an unexpected emergency. 

Under the personal loan umbrella, consumers can typically choose between secured and unsecured loans. The main difference is that secured personal loans are backed by collateral such as a car or house. 

Benefits Of A Personal Loan

  • Large Loans – Loan sizes vary by lender but are usually larger than both private loans and payday loans. 
  • Good For Budgeting – Personal loans come with regular payments (monthly, semi-monthly, bi-weekly, or weekly).

Drawbacks Of A Personal Loan

  • High Requirements –  Personal loans through banks and other traditional financial institutions usually have high requirements. This can make it difficult to qualify if you have bad credit or poor finances.  Moreover, a credit check is typically required before approval and many banks will deny you a loan if your credit score doesn’t meet their requirements. 
  • Doesn’t Require Collateral – Generally speaking, you do not require collateral to secure a personal loan. However, if you are unable to qualify for a personal loan because of poor credit or past financial mistakes, applying for a secured loan can increase your chances of approval. 

Best Personal Loan Lenders

Filters

Loans Canada

Amount
Up to $50,000
Rate
2.00% to 46.96%
Term
3-60 months

Loanz

Amount
$1,000 - $15,000
Rate
29.9% - 46.9% APR
Term
12 - 60 months

Symple Loans

Amount
$5,000 - $50,000
Rate
6.99% - 22.99%
Term
Up to 84 Months

Spring Financial

Amount
Up to $15,000
Rate
14.99% to 46.96%
Term
6 - 12 Months

goPeer

Amount
$1,000 - $25,000
Rate
7.5% - 31.5%
Term
36 - 60 months

Cash Money

Amount
$1,500 – $10,000
Rate
Varies by province
Term
Varies by product (up to 60 months)

Lendful

Amount
$5,000 - $35,000
Rate
Starting at 9.99%
Term
6 - 60 Months

Loan Away

Amount
Up to $5,000
Rate
19.9% to 45.9%
Term
6 - 36 Months

LoanMeNow

Amount
$500 - $1000+
Rate
28 to 32%
Term
3 Months

Consumer Capital Canada

Amount
$500 - $12,500
Rate
19.99% to 34.99%
Term
No minimum term

Mogo Finance

Amount
$300 – $35,000
Rate
9.9% - 47.72%
Term
3 - 60 Months

Fairstone Financial

Amount
Up to $50,000
Rate
19.99% - 39.99%
Term
6 - 120 Months

How To Apply For A Personal Loan

Whether you’re applying for a personal loan with a bank or private lender, the steps to apply are fairly simple: 

Step 1: Check Your Credit Score 

Lenders look at your credit score to determine whether or not to approve your loan application, as well as what interest rate to charge. It’s helpful for you to know what your credit score is, as it will give you an idea of your chances of getting approved for a personal loan. Plus, it will tell you what type of rate and terms you’ll be offered if approved.  

Step 2: Determine How Much To Borrow

Calculate exactly how much you need before applying. You don’t want to borrow too much, as that will just increase your debt more than necessary and leave you with bigger installment payments. Plus, you’ll be paying more interest on money you don’t need.

Step 3: Get Pre-Qualified

Loan prequalification means the lender will conduct a basic review of your creditworthiness to decide whether or not you can qualify for a loan. Many lenders let you get pre-qualified for a personal loan with a soft credit check, which won’t negatively impact your credit score. By getting pre-qualified, you’ll be able to compare loan offers before officially applying. 

Step 5: Apply For The Loan

Once you’ve narrowed down your options, apply for a loan directly through your lender of choice. If you’re applying with an online lender, you can apply online via their website. You’ll need to make sure that the application is filled out in full and submit all required documents.

Shortly after, you should receive notification of approval, then the funds will be sent to you via direct deposit or e-transfer soon after that. Approval and funding usually take no more than 24 hours with online lenders. 

Private Loans 

Private loans can are generally provided by a private individual, private creditor, or small business (not big banks or large financial institutions). Like a bank, these private lenders also offer personal loans, except they are usually smaller in size and more expensive.  While these private loans are more expensive, they have more flexible requirements compared to banks. As such, if you’re concerned about your low credit score or past financial issues then a private loan may be your best option. Private lenders are usually more willing to discuss your financial history and they rely less on credit scores to make their approval decisions.

Benefits Of A Private Loan

  • Fast Process – Most private loan lenders have automated their underwriting process which leads to fast approvals and funding. Moreover, most private loans can be applied and completed online. 
  • Flexible Repayment – Like banks, private loans come with flexible repayment options and long terms ranging from 6 months to 5 years. 
  • Low Loan Amounts – Most banks have a minimum loan amount, but some private lenders offer loans as little as $300.  
  • Accepts Different Borrowers – One of the biggest advantages of private loans is their flexible requirements. Borrowers with poor credit can still qualify for a private loan.  

Drawbacks Of A Private Loan

  • High Cost – While private loans are easier to qualify for, they are more expensive. Interest rates typically range between 3% to 46%.
  • High Fees – Private lenders are also known to charge a variety of fees such as loan origination fees and administration fees. 

Payday Loans

If you’re in a financial pickle, a payday loan may be a potential option to consider. Payday loans are short-term loans with very lax lending criteria, making them very easy to get approved for. Moreover, payday loans don’t require credit checks, making them an easy option for bad credit borrowers. 

Loan amounts are very low, usually for no more than $1,500. The loan terms are also extremely short. The loan must be fully repaid by the time you receive your next paycheque, which is typically within 2 weeks to a month. 

But despite how simple payday loans are to get approved for and how quickly you can get funded, these types of short-term loans are extremely expensive. Payday lenders charge anywhere from $15 to $25 per $100 borrowed, on average, depending on where you live. 

Benefits Of Payday Loans

Payday loans have a few perks that make them very attractive to borrowers:

  • No credit check required. One of the reasons why payday loans are so easy to get approved for is that your credit score doesn’t matter. In fact, many payday lenders don’t conduct credit checks at all. Even if you have bad credit, you can still get approved, as long as your income is sufficient to cover your loan payment. 
  • Fast funding. You can get access to your borrowed funds almost immediately after loan approval.  
  • No need for collateral. Unlike a car title loan or other secured loans, a payday loan does not require collateral. That means you won’t have to put any valuable asset at risk to secure the loan.  

Drawbacks Of A Payday Loan

Along with the benefits of payday loans, there are a few downsides that you should consider before applying:

  • Very high-interest rates. The borrowing fees for payday loans are among the highest in the lending industry. As mentioned, you could be paying anywhere from $15 to $25 for every $100 you borrow. And if you roll over your payday loan, you could wind up paying an APR of at least 500% or more.
  • Very short loan terms. You won’t have much time to repay the loan, since it will be due the next time you’re paid from work. It might be tough for you to come up with the funds needed to pay back the loan in such a short time.
  • Risk of getting stuck in a debt cycle. If you don’t have enough money to repay your payday loan by the time it’s due, you may have to roll over your debt into another expensive payday loan to pay back your original loan. If you do this enough times, you could find yourself sinking deeper and deeper into a cycle of debt

Fast Payday Lenders

Loan AmountInterest RateTermProvince Availability
Spring-FinancialUp to $15,00029.99% - 46.96%9 - 60 monthsBC, AB, SK, MB, ON, NB, NS, PEI, NLLearn More
Magical CreditUp to $20,00019.99% - 46.8%12 - 60 monthsBC, AB, ON, NB, NS, PEI, NLLearn More
Lend DirectUp to $15,000Started at 19.99%Open-endBC, AB, SK, ON, NS, PEI, NLLearn More
iCashUp to $1,500Varies by province*Max 62 daysBC, AB, MB, ON, NB, NS, PEILearn More
Money Mart$120 -  $1,500Varies by province*Max 62 daysBC, AB, SK, MB, ON, NSLearn More
Captain Cash$500 - $750Varies by province*90 to 120 daysBC, AB, ON, PEILearn More
Cash MoneyUp to $1,500Varies by province*Up to 62 daysBC, AB, ON Learn More
My Canada Payday$50 - $1,500Varies by province*14 daysBC, AB, SK, MB, ON, NSLearn More
Pay2Day logo$50 - $1,500Varies by province*Up to 31 daysBC, ON, NSLearn More
Speedy Cash$200 - $1,500Varies by province*Next paydayBC, AB, SK, NS, YT, NT, NULearn More
Cash4YouUp to $1,500Varies by province*Next paydayBC, ONLearn More
Loan ExpressUp to $1,500Varies by province*Max 62 daysBC, AB, SK, MN, ON, NB, NS, NL, YT, NT, NULearn More
*The maximum borrowing cost for a payday loan varies by province, learn more here.

What Do You Need To Get A Payday Loan?

As mentioned, it’s relatively easy to qualify for a payday loan. That said, there are still some criteria that typically must be met:

  • Age. You must be the age of majority in your province or territory.
  • Residency. You must have a valid Canadian address.
  • Employment. You may have to show proof of employment, though some lenders will also accept other non-traditional sources of income, such as government benefits.  
  • Income. You’ll also need to show proof that your income is enough to cover your loan repayment. 
  • Bank account. Most of the time, you’ll need to have an active bank account, which is how the lender will fund your loan and withdraw the money that’s due for repayment. However, some payday lenders may not have this requirement, especially if you apply in-person. 

Calculate The Difference In Cost: Personal Loans vs. Private Loans vs. Payday Loans

The costs of a personal loan, private loan and payday loan can vary greatly based on the interest, fees and terms offered. 

Cost Of A Personal Loan From A Bank vs. A Private Personal Loan

Personal Loan From A BankPrivate Personal Loan
Loan Amount$10,000$10,000
Term3 years3 years 
Interest Rate0.5% – 15%3% – 46%
Monthly Payment$279.92 – $346.65$290.81 – $516.73
Total Interest Paid$77.27 – $2,479.52$469.24 – $8,602.19

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$19$40 (default penalty)Next business day (or 2 days for online payday lenders)Not allowed
Newfoundland and Labrador$21$202 business daysAllowed
Prince Edward Island$25n/a2 business daysAllowed
Quebec35% AIRn/a10 daysNot allowed

How Do Payday Loans And Personal Loans Affect Your Credit?

Payday loans and personal loans can both affect your credit score in different ways.

Payday Loans 

  • No credit check – Payday loan providers don’t check your credit as part of the application process, so your credit will not be negatively affected when you apply.
  • Payment history –  Payday lenders do not report payments to the credit bureaus, so it won’t help you build credit. However, if you default on your loan, they may sell your debt to a collection agency which can negatively affect your credit.  

Personal Loans

  • Credit check – When you apply for a personal loan, most providers, will ask to perform a credit check as part of their application process. This is known as a hard inquiry and it can negatively hurt your credit. 
  • Payment history – Most personal loan lenders will report your payments, both good and bad to the credit bureaus. If you make your payments on-time and in-full, it can positively affect your credit score. Similarly, missed or late payments can negatively affect it. 

How To Choose Which Loan Is Right For You?

Personal loans and private loans are without a doubt your best options. They’re easy to apply for, easy to pay off and won’t ruin your finances. With that being said, here are some important questions you should consider when choosing a lender to work with:

  • How much money do you need?
  • When do you need the money?
  • Is the interest rate too high? Or is it manageable?
  • Does the lender check credit?
  • Does the lender report to the credit bureaus?
  • How much is the total cost of the loan?
  • Will your loan payments significantly affect your monthly budget?

FAQS

What is the interest rate of a payday loan?

Depending on the province you live in, the cost of borrowing $100 via a payday loan can vary between $15 to $60 dollars per $100 borrowed.  Keep in mind that these are not the annual percentage rates. The APR of a payday loan is often upwards of 500%.

What is the interest rate of a personal loan?

Because personal loans can be personalized based on the borrowers’ financial circumstances, interest rates vary greatly. But, generally speaking, interest rates range from 5% to 46%.  Legally in Canada, the maximum APR that a lender can charge is 60% (payday lenders are exempt from this law).

What type of loan should I choose if I have bad credit?

Contrary to popular belief, consumers with bad credit have multiple options to choose from when it comes to applying for a loan including no credit check loans, bad credit loans, secured loans and guarantor loans

How can I find a private lender in my area?

One of the best ways to find a private lender is to receive a recommendation from someone you trust. But, since this isn’t an option for some consumers, looking online is your next best option. There are countless online private lenders to choose from, just make sure you perform your own due diligence. When comparing lenders, make sure to watch out for the following red flags:
  • Offers of guaranteed approval
  • Illegal interest rates
  • Asking for an upfront payment of any kind
  • Asking you to make a payment via gift card
  • Rushing your decision
  • No online or real-world presence
  • No online consumer reviews

Bottom Line

Choosing between a personal loan, a payday loan, and a private loan should be based on personal preference and your current financial situation. Keep in mind that payday loans are typically the worst choice. Taking on debt that you cannot afford can cause serious financial issues down the road, always look for a lender who has a good reputation, offers a solution that fits into your budget, and is easy to work with.


Rating of 4/5 based on 7 votes.

Lisa has been working as a personal finance writer for more than a decade, creating unique content that helps to educate Canadian consumers in the realms of real estate, mortgages, investing and financial health. For years, she held her real estate license in Toronto, Ontario before giving it up to pursue writing within this realm and related niches. Lisa is very serious about smart money management and helping others do the same.

Click on the star to rate it!

How useful was this post?

Research & Compare

Canada's Loan Comparison Platform

Largest Lender Network In Canada

Save time and money with Loans Canada. Research and compare lenders before you apply. Share your experiences with Canada's top lenders.

Save With Loans Canada

Special Offers

Borrow $500-$50,000

Borrow $500-$50,000
NEW!

Don’t pay until March with this offer from our partner, Fairstone.* Ends January 31st.

View Offer
Cashback & Bonus Offer

Cashback & Bonus Offer
Ends March 1st, 2023

New Offer! Get up to $2,000 cashback + a $50 bonus on signing up. Conditions apply.

View Offer
Earn 5% Cash Back With Neo

Earn 5% Cash Back With Neo
No annual fee!

Earn an average 5%¹ cash back at thousands of partners and at least 0.5%² cashback guaranteed.

View Offer
Build Credit For $10/Month

Build Credit For $10/Month
Popular

With KOHO’s prepaid card you can build a better credit score for just $10/month.

View Offer
Best Personal Loan Provider by Greedy Rates
Icon

Confidential & risk-free

All consultations and conversations with Loans Canada and its partners are confidential and risk-free. Speak with a trusted specialist today and see how we can help you achieve your financial goals faster. Loans Canada and its partners will never ask you for an upfront fee, deposit or insurance payments on a loan. Loans Canada is not a mortgage broker and does not arrange mortgage loans or any other type of financial service.

When you apply for a Loans Canada service, our website simply refers your request to qualified third party providers who can assist you with your search. Loans Canada may receive compensation from the offers shown on its website.

Only provide your information to trusted sources and be aware of online phishing scams and the risks associated with them, including identity theft and financial loss. Nothing on this website constitutes professional and/or financial advice.

Your data is protected and your connection is encrypted.

Loans Canada Services Are 100% Free. Disclaimer

Build Credit For Just $10/Month

With KOHO's prepaid card you can build a better credit score for just $10/month.