Overview
Payday loans are small-dollar, short-term cash advances—usually $100 – $1,500—meant to “tide you over” until the next paycheque. Funds arrive quickly (sometimes in minutes), but the convenience carries one of the highest effective costs of any legal credit product in Canada.
How a Payday Loan Works
You complete a brief application online or in a storefront, provide proof of income, and authorize the lender to withdraw the full repayment amount—principal plus fee—on your next pay date. Typical terms run 14 – 62 days. The lender charges a flat dollar fee per $100 borrowed rather than a traditional interest rate; when converted to an annual percentage rate (APR), the cost commonly exceeds 300 %-400 %.
Provincial Regulations & Fees
Payday lending is regulated at the provincial level. Each province caps the maximum fee and sets additional consumer protections:
- Ontario, British Columbia, Alberta: $15 per $100 borrowed
- Saskatchewan: $17 per $100 borrowed
- Manitoba, New Brunswick, Nova Scotia, Newfoundland & Labrador: $14-$15 per $100
Rules also limit loan size (typically the lesser of $1,500 or 50 % of net pay), prohibit rolling one payday loan into another, and in many provinces mandate an extended payment plan if you can’t repay on time.
When People Consider a Payday Loan
Borrowers often turn to payday loans when an unexpected expense—car repair, medical prescription, overdue utility bill—lands days before payday and traditional credit (line of credit, overdraft, credit card) is unavailable. The loan is meant as a one-time bridge, not an ongoing source of cash.
Risks & Drawbacks
Because the entire balance is due on your next paycheque, repayment can leave you short on everyday expenses, triggering a repeat loan and a debt cycle. Missed payments add NSF fees from both the lender and your bank, and unpaid balances can quickly go to collections, harming your credit.
Safer, Lower-Cost Alternatives
Before signing, explore cheaper options:
- Ask your employer for a salary advance.
- Negotiate a payment extension with the service provider (utilities, landlord, vet).
- Use a low-interest line of credit or overdraft if available.
- Seek a small personal loan from a credit union; many offer “micro-loans” at a fraction of payday-loan fees.
Your Rights & Protections
Lenders must provide a written cost-of-borrowing statement, display fee schedules, and cannot charge additional interest beyond the capped amount. If you foresee trouble repaying, request an extended payment plan—most provinces require lenders to grant one at no extra cost if asked before the due date.
Frequently Asked Questions
How much can I borrow with a payday loan?
Provincial rules cap the maximum at either $1,500 or 50 % of your net pay, whichever is lower.
What does it actually cost?
Fees range from $14 to $17 per $100 borrowed. On a two-week $300 loan in Ontario, you would owe $345 on your pay date.
Will applying affect my credit score?
Most payday lenders do not report routine borrowing to credit bureaus, but missed payments or collections can appear on
your file.
Can I have more than one payday loan at a time?
Several provinces prohibit multiple outstanding payday loans and use a real-time database to enforce the rule.
What happens if I can’t repay on the due date?
Contact the lender immediately. You may qualify for a no-cost extended payment plan. Ignoring the debt can lead to NSF
fees, collection calls, and negative marks on your credit report.
Are there truly lower-cost alternatives?
Yes—credit-union micro-loans, employer advances, overdraft protection, or an installment loan with a realistic payment
schedule all cost far less overall.