How is the fee worked out?
The fee is the amount you borrow times the cost per $100, divided by 100. At the $14 maximum, every $100 costs $14. The fee includes everything the lender charges for the loan itself: interest, administration, processing and any similar charge. A lender can’t add an “insurance” or “membership” fee on top.
Why is the annual rate so high?
The annual percentage rate spreads the fee across a year. A $14 fee on $100 for 14 days is 14% for two weeks. There are 26 two-week periods in a year, so the annualized rate is 14% × 26, or about 365%. On a 62-day loan the same $14 fee works out to about 82% a year, still more than double the 35% that applies to every other consumer loan in Canada.
How does that compare with other options?
| Option | Cost of borrowing $500 for 2 weeks (approximate) |
|---|---|
| Payday loan at $14 per $100 | $70 |
| Credit card cash advance at 22.99% plus a $5 fee | About $9 |
| Bank overdraft at 21% plus a monthly fee | About $4 plus the fee |
| Employer advance on wages already earned | $0 |
Rates and fees vary by card and bank; check yours.
What happens if I pay late?
Each province caps what a lender can charge when a payment is missed. In Ontario, for example, interest on the overdue amount is limited to 2.5% a month, not compounded, and the fee for a returned payment is at most $20. Your bank will usually charge its own non-sufficient funds fee as well, often $45 to $50. On a $500 loan, one bounced payment can easily add $65 or more.
What does borrowing again cost?
This is where most of the cost hides. If you repay $570 on payday and that leaves you short, you might borrow $500 again two weeks later. Do that for three months and you’ve paid $420 in fees to borrow the same $500. Ontario requires an extended payment plan after three loans in 63 days, and Alberta builds instalments into every loan, because repeat borrowing is so common.
How can I lower the cost?
- Borrow the smallest amount that solves the problem.
- Repay early if the lender refunds any part of the fee; ask before signing.
- Check whether a cheaper option is open to you. Our alternatives page lists the main ones.
- If you’re borrowing repeatedly, talk to a non-profit credit counsellor. It’s free.