4.2.7 Payday loans

From: Financial Consumer Agency of Canada

At times, you may be low on cash, with your paycheque still a couple of weeks away. You see a sign in the window of a store for a "payday loan." Is this a good idea?

Here's what you need to know about payday loans:

  • A payday loan is a short-term loan
  • You promise to pay back on or before your next payday
  • You can borrow up to $1500
  • You usually pay interest at very high rates on the total of the loan
  • There are numerous fees if a payment does not go through

The costs shown in the example below are for illustration purposes only and are based on the following assumptions:

  • A payday loan costs $21 per $100 that you borrow, which is the same as an annual interest rate of 546%
  • A line of credit includes a $5 administration fee plus 7% annual interest on the amount you borrow
  • Overdraft protection on a bank account includes a $5 fee plus 19% annual interest on the amount you borrow
  • A cash advance on a credit card includes a $5 fee plus 21% annual interest on the amount you borrow

Comparing the cost of a payday loan with other types of short-term loans (based on a $300 loan for 14 days)

A comparison of the cost of payday loans compared to lines of credit, overfraft protection and cash advances.
Text version: Comparing the cost of a payday loan with other types of short-term loans (based on a $300 loan for 14 days)
Type of loan Cost
Borrowing from a line of credit $5.81
Overdraft protection on a bank account $7.19
Cash advance on a credit card $7.42
Payday loan $63.00


A payday loan is much more expensive than most loans offered by financial institutions. If a person cannot make the payment by the due date a $300 loan can up to more than $400 (with interest and fees) depending on the province.

Before you apply for a payday loan:

  • Check out your other options.
  • Find out about all the fees and charges you will have to pay
  • Calculate the amount that you are sure you can repay on the due date
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