An online payday loan is a short-term loan of up to $1,500 that you apply for, sign and receive without visiting a store. You borrow a small amount, the lender sends it to your bank account, and you repay the full amount plus the borrowing cost on your next payday. In Canada, that cost is capped by law at $14 for every $100 you borrow.
How online payday loans work, step by step
- Apply online. You give your contact details, employer or income source, pay schedule and the bank account where you are paid.
- Verify your bank account. Most lenders use a secure, read-only connection to confirm your recent deposits. This replaces faxed pay stubs.
- Get a decision. The lender works out how much you qualify for based on your net pay and your province’s rules.
- Read and sign the agreement. It must show the amount, the total cost in dollars, the APR and the due date.
- Receive the money. Funds are usually sent by Interac e-Transfer.
- Repay on payday. The lender collects the full amount by pre-authorized debit on the date in your agreement.
What you need to apply
- You are 18 or older (19 in some provinces) and live in a province where the lender is licensed.
- A Canadian bank account that has been open for a few months and receives your pay by direct deposit.
- Steady income from a job or a regular benefit. Some lenders accept government benefits; many do not accept EI alone.
- A working email address and mobile phone number.
- Government-issued photo ID if the lender asks for it.
What an online payday loan costs
The total cost, including every fee, can be no more than $14 per $100. Lenders can charge less, but not more. Because the term is short, the annual percentage rate is high. Here is the most you would pay on a 14-day loan:
| Borrow | Max cost | Repay | APR, 14 days |
|---|---|---|---|
| $300 | $42.00 | $342.00 | 365% |
| $500 | $70.00 | $570.00 | 365% |
| $800 | $112.00 | $912.00 | 365% |
| $1,500 | $210.00 | $1,710.00 | 365% |
If a payment is returned for insufficient funds, the lender can charge a default fee set by your province, and your bank will usually add its own NSF fee. Those charges are where a cheap-looking loan becomes expensive.
How to tell a licensed online lender from a scam
Fake loan sites copy the look of real lenders. Licensed lenders share a few things that are hard to fake:
- They show a provincial licence number on the website and in the agreement.
- They never ask you to pay a fee, buy a gift card or send an e-Transfer before you get your loan.
- Their site uses HTTPS on every page where you enter information.
- They give you the full cost before you sign, not after.
When an online payday loan is the wrong tool
A payday loan makes sense for a single, short gap, such as a car repair that cannot wait two weeks. It is the wrong tool for rent you cannot cover every month or for paying off another loan. If you are in either situation, read our guide to lower-cost alternatives first.