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:
| Province | Interest Rate (2-week term) | Fees per $100 (2 weeks) | APR |
| Alberta | 15% | $15 | 391% |
| Manitoba | 17% | $17 | 443% |
| British Columbia | 15% | $15 | 443% |
| Ontario | 15% | $15 | 391% |
| Nova Scotia | 19% | $19 | 495% |
| Saskatchewan | 17% | $17 | 443% |
| New Brunswick | 15% | $15 | 391% |
| Newfoundland and Labrador | 21% | $21 | 548% |
| Prince Edward Island | 25% | $25 | 652% |
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 comparisons site like Loans Canada or Loanz to compare rates across several loan companies at once and avoid submitting 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.
Loans Canada
Loans Canada is a loan comparison platform for all kinds of personal loans, car loans, debt consolidation loans, and bad credit loans.
Interest rate: 1.99% to 46.96%.
Loan term: 4-60 months.
Maximum loan amount: Up to $50,000.
Loanz
Loanz offers unsecured loans for debt consolidation, bad credit, emergencies, and other types of personal loans.
Interest rate: 29.9% to 46.9%.
Loan term: 12-60 months.
Maximum loan amount: Up to $15,000.
Related: LoanConnect Canada Review.
2. Use Your Credit Card
A credit card cash advance will cost you; however, the interest rate is much 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, another 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.
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 gives you access to $100 three days before your paycheque.
The KOHO reloadable Mastercard is one of the best cash back cards in Canada, with up to 5% cash back on purchases.
When you open an account here, you get a $20 bonus after making your first purchase with the card. You can also use the STACK Mastercard to benefit from a similar feature.
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:
The illustration assumes a:
- Line of credit with $5 administration fees and 8% annual interest rate.
- Overdraft protection with a $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 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 rounds it up to $3.00 and saves or invests the $0.80 difference.
What Else?
The above options 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.
