In Canada, payday lenders can charge at most $14 per $100 borrowed since January 1, 2025, under the federal cost-of-borrowing cap. That sounds small, but on a two-week loan it equals an annual percentage rate of roughly 365%, far above the 35% APR criminal interest rate that applies to most other loans. This guide shows how to calculate the true cost of a payday loan, what the 2025 rules changed, and cheaper alternatives if you are short on cash.
Payday loan rules in Canada since 2025
Two federal changes took effect on January 1, 2025:
- Criminal interest rate lowered: the maximum legal annual rate for most consumer loans fell from 60% effective annual rate (about 48% APR) to 35% APR.
- Payday loan cap: payday loans regulated by provinces were given a national maximum cost of $14 per $100 borrowed, replacing provincial caps that ranged from $14 to $17.
Provinces still license payday lenders and set other rules, such as cooling-off periods, limits on repeat loans and disclosure requirements. Some provinces, including Quebec, effectively restrict payday lending through their own interest rules.
How to calculate the real cost of a payday loan
Payday loans are usually repaid on your next payday, often in 14 days. To compare them with other credit, convert the fee to an annual rate.
- Fee per $100 × amount borrowed ÷ 100 = total fee.
- Total fee ÷ amount borrowed = cost for the loan period.
- Multiply by the number of periods in a year (365 ÷ loan days) to get a simple annual rate.
Example: $500 for 14 days
- Fee: $14 × 5 = $70.
- You repay $570 in two weeks.
- Cost for the period: $70 ÷ $500 = 14%.
- Annualized: 14% × (365 ÷ 14) = about 365%.
| Amount borrowed | Maximum fee at $14 per $100 | Repay in 14 days | Same amount at 19.99% card interest for 14 days |
|---|---|---|---|
| $300 | $42 | $342 | About $2.30 |
| $500 | $70 | $570 | About $3.83 |
| $1,000 | $140 | $1,140 | About $7.67 |
| $1,500 | $210 | $1,710 | About $11.50 |
The comparison with a regular credit card purchase is striking. Card cash advances usually add a fee and start charging interest immediately, but even so, they are almost always cheaper than a payday loan.
The rollover trap
The biggest danger is not one loan but a chain of them. If you cannot repay $570 on payday, you may take a new loan to cover the old one, paying another $70 fee. Repeat that for three months and the fees total about $420 on a $500 need, almost the original amount. Many provinces now limit back-to-back loans for this reason, but borrowing from several lenders can bypass those limits.
Cheaper alternatives to a payday loan
- Ask your employer for a pay advance: some employers offer this at no cost.
- Credit union small loans: several credit unions offer small-dollar loans at much lower rates.
- Overdraft protection: costly, but usually far cheaper than $14 per $100 for two weeks.
- Line of credit or credit card: even at 20% to 25%, the cost for two weeks is a few dollars.
- Payment arrangements: call the utility, landlord or creditor and ask for more time before borrowing.
- Government benefits: check that you receive the GST/HST credit, Canada Child Benefit and Canada Workers Benefit you are entitled to.
Checklist if you already have payday loans
- List every payday loan, the lender, the amount due and the due date.
- Do not take a new loan to repay an old one.
- Ask the lender whether your province requires an extended payment plan for repeat borrowers.
- Build a bare-bones budget for the next two pay periods.
- Contact a non-profit credit counselling agency if you have more than one loan.
- If lenders or collectors contact you, know your rights; see our guide to collection agency rights in Canada.
Payday loans and your credit
Payday lenders often do not report on-time payments to credit bureaus, so a payday loan rarely helps your credit score. However, an unpaid loan sent to collections can be reported and damage your score for years. Our article on how debt affects your credit score explains what stays on your file and for how long.
When debts have piled up
If payday loans are a symptom of larger debts, a structured solution may help more than another loan. Options include a debt management plan through credit counselling, a consolidation loan, or a consumer proposal with a Licensed Insolvency Trustee. Payday loans are generally included in a consumer proposal or bankruptcy like other unsecured debts.
Building a buffer so you never need one
Most payday loans cover a gap of a few hundred dollars. A small emergency fund, even $500 to $1,000, removes the need for most of them. Building it does not require a large income, only consistency.
- Open a separate high-interest savings account that you do not see every day.
- Set an automatic transfer of $20 to $50 on each payday.
- Add part of any tax refund, GST/HST credit payment or bonus.
- Use the fund only for true emergencies, then rebuild it.
At $40 per biweekly pay, you would reach about $1,040 in a year, enough to replace two typical payday loans and save around $140 or more in fees, before counting the rollovers you avoid.
Signs a lender may not be legitimate
- No licence number for your province displayed on the website.
- Requests for an upfront fee before the loan is approved.
- Pressure to decide immediately or to borrow more than you asked for.
- Fees or interest above the legal maximum in the loan agreement.
- Contact only through text messages or social media, with no physical address.
If you spot these signs, do not share your banking information, and report the lender to your provincial consumer protection office. The Financial Consumer Agency of Canada also publishes plain-language guidance on payday loans and borrowing costs.
Talk to your bank before you need cash
Banks and credit unions can sometimes add a small overdraft limit or a low-limit credit card for existing customers. Setting this up while your finances are stable is easier than asking during a crisis, and the cost of using it for a short gap is a fraction of a payday loan fee.
FAQ
What is the maximum payday loan fee in Canada?
Since January 1, 2025, the maximum is $14 per $100 borrowed, including interest and fees, for payday loans that fall under the federal exemption from the criminal interest rate.
Is a 365% APR legal?
For licensed payday loans that meet the federal conditions (small amounts, short terms, provincial regulation), yes. For most other loans, charging more than 35% APR is a criminal offence.
Can a payday lender take money from my bank account?
If you signed a pre-authorized debit, the lender can withdraw the agreed amount on the due date. You can contact your bank about stopping future debits, but the debt remains owed.
Are online payday lenders safe?
Only use lenders licensed in your province. Unlicensed online lenders may charge illegal fees or misuse your personal information.
In short: a payday loan costs up to $14 per $100, about $70 on $500 for two weeks, or roughly 365% annualized. Avoid rollovers and compare cheaper options first. This article is general information; for help with your situation, contact a non-profit credit counsellor or your provincial consumer protection office.
