10 Payday Loan Alternatives in Canada

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by Enoch Omololu

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You know payday loans are bad, right? However, life happens, and sometimes that 652% APR payday loan appears to be the only way to access cash when you need it fast.

A payday loan is an unsecured short-term loan that’s offered with extremely high interest rates.

Payday lenders generally offer between $100 and $1,500 for a term ranging from 2 weeks to 2 months.

The interest rate you pay is based on a 14-day repayment plan and the maximum they can charge in each province is as follows:

ProvinceInterest Rate
(2-week term)
Fees per $100
(2 weeks)
British Columbia15%$15443%
Nova Scotia19%$19495%
New Brunswick15%$15391%
Newfoundland and Labrador21%$21548%
Prince Edward Island25%$25652%

So, when your cash advance loan is advertised at a 17% rate, the equivalent annual percentage interest rate is actually 443%.

Payday loans are easy to apply for. You don’t need to have a good credit score and collateral is not required.

That said, these ‘predatory’ loans often end up sucking people into a vicious cycle of debt. And, there is no such thing as a payday loan with low fees.

Payday Loan Alternatives

Some alternatives to payday loans are:

1. Get a Personal Loan

While your bank or credit union may be unwilling to offer you a personal loan if you have a poor credit score, you may have better luck with an online lender that offers installment or personal loans.

Each time you apply for a loan and a lender pulls your credit profile, the hard inquiry negatively impacts your credit score.

You can use a loan comparison site like LoanConnect to compare rates across several loan companies at once and avoid having to submit multiple applications.

If you have a good credit score, start your loan search with your bank or credit union as they are more likely to give you better interest rates.

Related: LoanConnect Canada Review.

2. Use Your Credit Card

A credit card cash advance will cost you, however, the interest rate is a lot cheaper than the average payday loan.

For example, if you withdraw cash at an ATM using your credit card, you may have to pay a cash advance fee (e.g. $5) plus the cash advance interest rate (e.g. 22.99%).

Here are some bad credit score credit card options. You can also check out these credit cards that have a low-interest rate for cash advances and balance transfers.

Aim to pay off your credit card balance as soon as possible.

3. Get a Line of Credit

If you already have a line of credit, you can draw on it to pay your bills.

Alternatively, if you have equity in your home, you can apply for a Home Equity Line of Credit (HELOC). It will cost you a lot less than a payday loan.

4. Get a Guarantor Loan

If you don’t qualify for a personal loan and can’t provide collateral for a secured loan, one other option is to apply for a guarantor loan.

Guarantor loans don’t rely on your credit score, however, you will need a “guarantor” who agrees to pay back the loan if you default.

These loans are not cheap either, however, they are not as costly as payday loans.

An example is LendingMate. It is available in Ontario, British Columbia, and Quebec, with rates ranging from 34.9% to 43% per annum.

5. Try a Side Hustle

Instead of taking on extra debt, perhaps you could use a side-gig to make extra money?

Here are some work from home jobs to consider. You can also try these food delivery jobs for access to quick cash.

6. Use a Payday Advance App

KOHO Early Payroll (Free) gives you access to $100 three days before your paycheque.

There’s no interest and the service is free when your paycheck is deposited in your bank account, the $100 is deducted automatically.

KOHO also offers an instant Early Payroll Service that costs $5.

The KOHO app and reloadable Visa card is one of the best cash back cards in Canada, with 0.50% – 2% cash back on all purchases.

When opening an account, use our promo code CASHBACK to get 1% extra cash back for 90 days.

7. Use Overdraft Protection

If you have overdraft protection on your chequing account, you can withdraw more than you have in your account and avoid a Non-Sufficient Fund fee.

Overdraft protection has limits and you will pay an overdraft fee (monthly or per use) and interest (up to 22% per annum).

Below is an example showing how a $300 payday loan costing $17 per $100 compares to payday loan alternatives:

payday loan alternatives canada
Source: Financial Consumer Agency of Canada

The illustration assumes a:

  • Line of credit with $5 administration fees and 8% annual interest rate.
  • Overdraft protection with $5 fee and 21% annual interest rate
  • Cash advance credit card with a $5 fee and 23% annual interest rate

8. Get a Loan From Friends or Family

Check whether your friends or family members are willing or able to give you a loan.

Pay back the loan as soon as possible or you risk damaging your friendship.

9. Have an Emergency Fund

An emergency fund should be a part of your budgeting strategy.

While experts advise that your emergency fund should be equivalent to be 3-6 months’ worth of expenses, any amount can help.

Keep your emergency savings in a high-interest savings account where it has a chance to grow.

10. Use a Micro-Investing or Savings App

Investing or saving money when you have a tight budget can be challenging and this is where micro-investing or savings apps come to play.

They round-up your purchases and save the difference.

For example, if you purchase a cup-of-coffee for $2.20, a roundup app like Moka or Wealthsimple round it up to $3.00 and save or invest the $0.80 difference.

What Else?

The options listed above can help you avoid payday loans and the high interest rates they charge.

If you are having significant difficulties with managing your debt, a financial advisor or accredited credit counsellor may be able to help you chart a plan for getting back on your feet.

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Enoch Omololu

Enoch Omololu is a personal finance expert and a veterinarian. He has a master’s degree in Finance and Investment Management from the University of Aberdeen Business School (Scotland) and has completed several courses and certificates in finance, including the Canadian Securities Course. He also has an MSc. in Agricultural Economics from the University of Manitoba and a Doctor of Veterinary Medicine degree from the University of Ibadan. Enoch has a passion for helping others win with their personal finances and has been writing about money matters for over a decade. His writing has been featured or quoted in The Globe and Mail, Winnipeg Free Press, Wealthsimple, Financial Post, Toronto Star, Credit Canada, MSN Money, National Post, CIBC, and many other personal finance publications.

His top investment tools include Wealthsimple and Questrade. He earns cash back on purchases using KOHO, monitors his credit score for free using Borrowell, and earns interest on savings through EQ Bank.

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