Why payday loans should be a last resort

Payday loans are popular in Canada. Approximately 2 million people choose this kind of short-term financing every year. While it’s a convenient way to bridge the gap between now and your next paycheque, the short- and long-term consequences of  these types of loans should make them a last resort. 

Before you think that a payday loan is your only option, you may want to consider the advantages of an installment loan. It can be arranged just as quickly and may lead to better longer-term financial consequences. 

What’s the real cost of a payday loan? 

Payday loans are an expensive way to borrow money and many Canadians are unaware of the high cost. In fact, a 2016 survey by The Financial Consumer Agency of Canada (FCAC) found that only 43% of payday loan borrowers understood they were more expensive than available alternatives.

Here’s how payday loans differ from traditional installment loans and other forms of credit and why the cost can easily get out of control: 

Qualifying for a payday loan

Payday loans are not governed by the same rules that apply to installment loans. As a result, the criteria are not as strict. Most lenders simply ask for: 

  • A stable source of income
  • An active bank account
  • A permanent address

With this information, most payday lenders will usually allow you to apply for a loan with no credit check. 

Activating a payday loan

Because a payday loan is guaranteed by your next paycheque, lenders will ask you to do one of the following: 

  • Fill out a form authorizing them to withdraw the total loan amount, including fees, directly from your bank account when the loan is due (also called a pre-authorized debit)


  • Provide a post-dated cheque for the total loan amount including fees

Time to repay the loan

Payday loans are a unique form of credit because they are designed to be very short-term. The expectation is that you will pay them off with the money you get from your next paycheque, which is typically within 14 to 30 days of the time you receive your loan. Failing to pay back the entire amount on time can lead to excessive fees, penalties or ongoing interest charges. 

Payday loans vs. installment loans

Installment loans are meant to be longer-term forms of credit that let you divide the amount you borrow over several “installments” for months or years at a time. Not sure what type of installment loan is right for you? Check out different types of installment loans

For many Canadians, even those who maintain a good credit score, an installment loan can provide a fast, effective way to bridge financial gaps. Compared to a payday loan, installment loans offer a number of advantages.

In addition to higher interest rates, payday loans come with various fees. This could quickly increase the cost of borrowing and have a long-term impact on your credit if the entire amount is not paid off in full on your next payday. For example: 

  • Lenders may charge a fee if you don’t pay the full amount
  • Banks may charge an overdraft fee if you don’t have enough money in your account
  • Lenders could use a collection agency to recoup their money and this would affect your credit rating 
  • You could be sued for the amount you owe and end up with legal fees

These high costs are avoidable when you take time to consider all of your options and make payday loans a last resort. Sometimes, you may be able to find the short-term money you need by speaking with your employer about a pay advance or cashing-in unused vacation days. Some companies now offer on-demand payroll that lets you access the income you’ve earned at any point in your pay cycle. 

Short on cash and short on time? 

Before you sign up for a payday loan, understand all your options. Talk to a helpful easyfinancial representative to find the solution that best fits your budget. 


Disclaimer: This content is intended for informational purposes only and does not constitute financial advice on any subject matter. 

*Source: https://www.canada.ca/en/financial-consumer-agency/services/loans/payday-loans.html#toc2 

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