Payday Loans

Payday Loans in Canada

Payday loans are very common all over Canada. It means you get a small loan, usually a few hundred dollars up to a couple thousand, and have to pay it back within a short time frame such as one or two weeks. The interest rates can be high, but the good news is that you can get approved for a payday loan right away, even with bad credit, and get your cash the same day. At Smarter Loans, we’ve compiled a list of the most reputable payday loan providers in Canada, which you can see below. Click “Apply Now” next to one of the companies to get started, or you can pre-apply right here at Smarter Loans and we will find the most suitable payday loan provider for you.

We can help connect you with the top loan payday loan providers in Canada.

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Top Payday Loans Providers in Canada

Company
Amount
Interest Rate
Reviews
Terms
$100 - $1,500
Varies
Up to 2 months
$100 - $1,500
Varies by Province
Up to 62 days

What is a payday loan and how does it work?

 

A payday loan is a form of unsecured short-term borrowing facility that is lent out to retail consumers. In this type of borrowing structure, there is typically a repayment agreement that is activated in full when the borrower receives his/her next paycheque from his/her employer.

All things equal, a payday loan generally has a higher interest rate attached to it because of its unsecured nature. Because the loan is non-recourse to personal assets of the borrower, the lender for such types of debt has to assume a higher rate of risk for every dollar lent out. To be compensated for this outsized risk compared to secured loans, there is a higher borrowing fee i.e. interest rate, charged.

The principal amount of a payday loan is relatively smaller than other loans (generally in the $500 – $1000 range with an upper limit set by the federal regulator in Canada). In Canadian provinces and territories, these loans are mainly provided at retail stores or online by non-bank institutions that have to be registered with the Financial and Consumer Services Commission.

The loans are mostly structured to be repaid in a single payment via a post-dated cheque or pre-authorized electronic debit for the full balance. Assuming that the borrower does not repay the loan early, the cheque is then cashed in or the debit is withdrawn by the lender.

What the numbers say…

 

In Canada, the 25-54 year olds makeup over 70% of the borrowing population. Canadians in the 35-44 age range account for 27% of the borrowing.

Source: Financial Consumer Agency of Canada

What is the difference compared to other alternatives?


The most comparable alternative to a payday loan, wherein borrowers acquire short-term financing to assist with immediate expenses is a cash advance. To this end, there are two types of cash advances:

Type I is pretty synonymous with a payday loan where the lender provides a fixed principal amount that is tied to the borrower’s income and is intended to be repaid on the borrower’s next payday.

Type II is a structured as a line of credit where the cash advance offered is dependent on the unused credit limits on the borrower’s credit card rather than on income. This type of cash advance is provided directly by the credit card company (not the issuer) and receives the same type of treatment as any other ordinary purchase made with a credit card.

Depending on the borrower’s financial situation and credit card features, it may or may not be advantageous to have a credit card cash advance. Some key factors for borrowers to consider if choosing between these two options are current credit ratings and credit card contract terms with the bank. In some cases, credit card companies charge higher rates on cash advances than on ordinary credit purchases, so it is important for the borrower to understand the rate differential, and choose accordingly.

Borrower Rights in Canada:


Payday loans in Canada are governed by the Payday Loans Act, 2008, which was initiated to protect borrowers taking out these types of loans. As per the Act:

Insurance is optional on the loan

Borrowers cannot be charged more than 15% interest on a principal amount

Lenders cannot sell or offer to sell any incremental and/or additional goods and services along with the payday loan

Lenders cannot provide more than a fixed percentage of net paycheque proceeds (the percentage varies between 30% to 50% across provinces)

Borrowers can cancel a payday loan contract within 2 business days without paying any penalty fees or providing a reason to the lender

Payday loan debt cannot be rolled over into a new payday loan as it is prohibited to receive a second loan from the same lender before paying the first one in entirety

Furthermore, a failure to meet the terms of the loan agreement cannot result in the lender pursuing one or more of the following actions:

Contacting the borrower more than 3 times a week (excluding regular mail) or on statutory holidays

Contacting the borrower’s immediate or distance relatives, household members, friends, neighbours or acquaintances at any time

Using excessive pressure or threatening language to coerce payment

Processing a post-dated cheque or pre-authorized debt more than once if it means that the financial institution will charge additional fees such as overdraft or insufficient funds fees

Lender Requirements:


Lenders also have to comply with several regulatory requirements to operate as a fully licensed provider. These include:

  • Licensed & Registered

    The lender must be licensed and registered with the Government of the province they operate in, as well as fully compliant with the rules of the Payday Loans Act, 2008.

  • Transparent

    The lender must display specific information including the principal amount, number of days the loan is for and the interest rate charged on the first page of the contract

  • Payment

    The lender cannot ask for or accept payment by automatic paycheque deduction

  • Borrow Practices

    The lender cannot issue more than one loan at the same time to a borrower

  • Cost of Loan

    The lender must display a poster and provide a flyer articulating the costs of a payday loan over time

Pre-Apply for a Payday Loan Here

Key Advantages:


Despite the higher interest, payday loans offer some of the following benefits over other types of short-term funding methods. 

Limited Requirements

Most payday loans are accessible to people who are above 18 years of age and have consistent, verifiable income.

While traditional loans require collateral to be posted, these loans are unsecured meaning that repayment is based solely on the cash flows and income of the borrower

Spending Flexibility

Conventional retail loans are offered with a specific purpose that is defined from the outset. An auto loan can only be used to purchase an automobile and a mortgage can only be used to finance a residential or commercial property.

On the contrary, a payday loan can be spent on any discretionary or staple expense as deemed fit by the borrower

(Almost) Instant Liquidity

In most cases, the borrower has to provide a limited amount of financial information including proof of regular income, a bank account and a permanent address.

Thereafter, the payday loan is approved and funds are transferred within a few hours or a working day after the completed application

Easy Access

In today’s market landscape, payday loans are available to anyone with an Internet connection.

All processes and procedures can be completed online instead of a traditional loan, which generally requires meetings with a specialist loan officer

Credit Where It’s Due

Conventional loans with longer timelines come with the risk of having to maintain a stable level of income for that period of time.

Payday loans have significantly shorter timeframes (sometimes as short as a week), which enables a greater degree of certainty of repayment once the paycheque arrives

Factors to Consider:


There are also certain features that can pose risks to prospective borrowers, we’ve listed some of the most common ones below:

Interest: Depending on the duration that the loan is obtained for and the rate charged by the lender, payday loans can be an expensive form of financing compared to other short-term loans and/or credit cards. The table below illustrates this concept more clearly. Assuming $500 borrowed for 2 weeks, payments are as follows:

Payday Loan                 |                  Credit Card


              $75 at a 15% rate             |           ~$8 assuming a 23% APR

 

Rinse and Repeat: Often, borrowers find themselves in a cycle of debt wherein each paycheque goes towards the pay-down of existing loans, leaving little for the operating expenses they took out the loan for. The extensions of the loans as a consequence come with strings attached in the form of higher fees added to the original amount.

Predatory Practices: Non-sophisticated borrowers may be susceptible to lending practices that are intended to be unfavourable from the borrower’s perspective by exploiting contract loopholes or misleading marketing materials. It is therefore critical for consumers to find registered institutions that are vetted by regulatory authorities.

Key Variables:


Before obtaining a payday loan, the following should be defined and reviewed in detail:

Needs
Before undertaking a payday loan, it is important to understand the need for such, and whether they justify the higher interest payments. For debts that can be negotiated, it could be worthwhile to speak to the creditors directly to restructure the outstanding amounts and/or develop a specialized repayment plan if that option is available
Alternatives
Besides payday loans, credit unions or credit card companies also offer short-term funding options. Again, if that option is available, it may be worthwhile for the borrower to compare costs before deciding upon a final option
Loan Term
The length of the loan is a major consideration. If the borrower is in immediate need of cash and payday is still a few weeks away, the payday loan would be a better option than for someone whose payday is a few days away and/or does not have immediate cash needs
Principal Amount
The amount being obtained should be studied closely prior to receiving the funds as each incremental dollar yields a higher interest payment. In a facility such as a payday loan, this gets magnified due to the significantly higher rate charged
Interest, Penalties and Other Fees
The unsecured nature of loans is a catch-22 situation in of itself. While the borrower does avoid asset seizure, interest rates can be extravagantly high on an APR basis. This is even before the penalties and other fees come into consideration. It is therefore important to read contract documents carefully to understand the consequences of missed/late payments

Alternatives to Payday Loans:


Below you’ll find a list of reputable companies that offer personal and installment online loans in Canada. Take a look and compare your options, including products offered, interest rates, terms, qualifications and even reviews from other customers. When you’ve found the loan company you like,  hit “Apply Now” next to the lender to start the application process.

 

Company
Amount
Interest Rate
Reviews
Terms
$500 - $35,000
5.9% - 39.9%
12 - 60 Months
$500 - $35,000
19.99% - 46.96%
9 - 120 Months
$500 - $20,000
23% - 59.7%
6 - 60 Months
$2,000 - $10,000
18.9% to 54.9%
12 - 60 Months
$1,500 - $12,500
19.99% - 34.99%
12 - 60 Months
$500 - $10,000
12.99% - 39.99%
9 - 36 Months
$500 - $10,000
19.99% - 46.99%
12 - 36 Months
$500 - $30,000
19.99% - 39.99%
6 - 120 Months
Up to $35,000
Starting at 5.15%
Varies
$2,000 - $10,000
34.9% - 43%
12 - 60 Months
$500 - $10,000
46.93%
Open Line of Credit
$1,000 - $35,000
5.6% - 25.5%
36 - 60 Months

Other Useful Reading


Types of Payday Loans offered:

  • Personal Loans
  • Debt Consolidation Loans
  • Bill Payment Loans
  • Cash Advances
  • Dentist Loans
  • Vacation Loans
  • Short Term Loans
  • Emergency Expenses Loans
  • Bad Credit Loans
  • Installment Loans
  • Online Loans
  • Fast Cash Loans

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