Payday loan alternatives and how to borrow responsibly
Payday loans are fast but expensive. Here's what to compare first, and how to keep one from snowballing.
Key facts
- A $300 payday loan for 14 days costs $42 at $14 per $100.
- Per the FCAC, the same $300 costs about $6–$8 on a line of credit, overdraft or card cash advance.
- Only borrow what you can repay in full on your next payday.
Check these options first
The Financial Consumer Agency of Canada (FCAC) suggests looking at cheaper options before a payday loan:
- Ask for more time to pay a bill, or ask your lenders about a payment deferral.
- Ask your employer for a pay advance, or cash in vacation days.
- Borrow from family or friends.
- Use a line of credit, overdraft protection or a credit card cash advance.
How the costs compare
| $300 for 14 days | Cost |
|---|---|
| Line of credit | $5.92 |
| Overdraft protection | $7.42 |
| Credit card cash advance | $7.65 |
| Payday loan ($14 per $100) | $42.00 |
FCAC illustration; assumptions include fees and rates set by FCAC and are for illustration only.
When a payday loan can make sense
A payday loan is built for a short, one-time cash gap, like a surprise bill a few days before payday, when cheaper options aren't available and you're sure you can repay in full on your next payday.
Borrow responsibly: a quick checklist
- Borrow only what you need. A smaller loan costs less.
- Know the total. At $14 per $100, $500 for 14 days costs $70, so you repay $570.
- Plan the due date. Make sure the money will be in your account when the payment comes out.
- Avoid stacking loans. Taking a new loan to repay an old one is how debt snowballs. Rollovers aren't allowed in Ontario.
- Use your cooling-off period if you change your mind: two business days, no penalty.
If you're stuck in a cycle
Talk to us early at [email protected]. In Ontario, if you take out three payday loans within 63 days, the lender must offer an extended payment plan. The FCAC also suggests free, confidential help from an accredited credit counsellor or a licensed insolvency trustee.
Quick answers
What is cheaper than a payday loan?
Per the FCAC, a line of credit, overdraft protection or a credit card cash advance usually costs far less. On $300 for 14 days, those cost about $6 to $8, compared with $42 for a payday loan.
What is an extended payment plan?
In Ontario, if you take out three payday loans within 63 days, the lender must offer to let you repay in instalments over several pay periods, with no fee to prepay or exit the plan.
Sources: Financial Consumer Agency of Canada, Payday loans; Government of Ontario, Payday loan: your rights. General information, not financial advice.