Short-term borrowing is easier to get right when you know a few numbers. These guides are free and written for people who are deciding whether to borrow, not for people who already have.
APR, explained with a payday loan
The annual percentage rate (APR) shows the cost of borrowing as if it lasted a whole year. It lets you compare loans of different lengths. A $14 fee on $100 for 14 days is 14% for two weeks. There are about 26 two-week periods in a year, so the APR is about 365%. Stretch the same $14 over 62 days and the APR drops to about 82%. A credit card cash advance at 23% APR plus a small fee usually costs much less for the same two weeks.
A two-week budget before you borrow
- Write down the date and amount of your next pay.
- List every bill and debit due before the pay after that.
- Add the payday loan repayment.
- If what is left will not cover food and transport, the loan will likely create a new gap. Borrow less or look at alternatives.
Lower-cost alternatives to payday loans
Ask the bill provider
Utilities, landlords and phone companies often agree to a short extension or payment plan if you ask before the due date.
Employer pay advance
Some employers will advance wages you have already earned, often at no cost.
Overdraft or line of credit
Your bank’s overdraft or a line of credit usually costs much less than a payday loan for the same period.
Credit union small loan
Some credit unions offer small, short-term loans at lower rates as an alternative to payday lending.
Community programs
Food banks, emergency rent funds and municipal programs can bridge a gap without debt.
Credit counselling
Non-profit credit counsellors can negotiate with creditors and build a repayment plan, usually free.
How the payday loan cycle starts and how to stop it
The cycle usually starts when repaying a payday loan leaves too little for the next two weeks, so you borrow again. Each loan costs up to $14 per $100. Five $500 loans in a row cost $350 in fees, with nothing paid down. Ontario’s extended payment plan, which applies on your third loan in 63 days, is designed to break this pattern by spreading repayment out. If you are on your second or third loan, call a credit counsellor before taking another.
Credit score basics
Canadian credit scores from Equifax and TransUnion run from 300 to 900. Paying on time and keeping card balances well below their limits matter most. Most payday lenders do not report on-time payments, so payday loans rarely help your score, but a defaulted loan sent to collections can hurt it. You can check your credit report for free from both bureaus.