Payday loans have real advantages. Pretending otherwise would be dishonest, and it would not help anyone deciding whether to take one.
They are also the most expensive way to borrow small amounts of money in Canada. Both things are true at once, and the useful question is not “are payday loans good or bad” but which of their advantages you actually need, and whether something cheaper offers the same one.
The three genuine advantages
Money arrives fast
This is the real one. A payday loan can put cash in your account the same day, sometimes within an hour. When a car needs fixing to get you to work on Monday, speed has value that an interest rate comparison does not capture.
There is no credit check
Payday lenders do not pull your file from Equifax or TransUnion. If you have been declined elsewhere, this is often the difference between access and no access — and applying leaves no mark on your credit score.
The requirements are few
Regular income, an active bank account, proof of identity. That is broadly it. No collateral, no guarantor, no lengthy application.
What those advantages cost
The standard price in Canada is $15 per $100 borrowed over 14 days. On a $300 loan that is $45 in fees, repayable in one payment on your next payday.
Annualised, $15 per $100 per 14 days is roughly 391% APR. That figure is often dismissed as unfair — “nobody keeps a payday loan for a year” — and there is something to that. But it is the only number that lets you compare a two-week product against anything else, so here is the same $300 over the same 14 days, three ways:
| Method | Cost over 14 days |
|---|---|
| Payday loan at $15/$100 | $45.00 |
| Bank overdraft at ~21% APR | $2.42 |
| Overdraft plus a $5 monthly protection fee | $7.42 |
A payday loan is six to nineteen times more expensive than an overdraft for the same money over the same fortnight. If you have an overdraft facility, using it is almost always cheaper.
This is worth stating plainly because the opposite is sometimes claimed, including in an earlier version of this article. It was wrong.
When a payday loan is genuinely the better option
Three situations, honestly:
- You have no overdraft and no credit available, and the alternative is a missed payment with worse consequences.
- The gap is genuinely a few days, the money to repay it is already scheduled to arrive, and nothing will divert it.
- The cost of not borrowing is higher than $45. A missed rent payment, a car you need to earn, a utility reconnection fee.
The common thread is that the shortfall is small, brief, and already solved by income that is on its way.
When it is not
- When the shortfall is ongoing. If income does not cover regular expenses, a payday loan moves the problem two weeks forward and adds $45 to it. The second loan is the one that causes the damage, not the first.
- When you would need to roll it over. Repaying one payday loan by taking another is where the arithmetic stops being survivable.
- When you have cheaper credit available and are avoiding it out of habit. An overdraft, a credit card at 20%, or a credit union small loan are all dramatically less expensive.
The same advantages, cheaper
Every advantage listed at the top of this page is available elsewhere at lower cost, in some combination:
| What you need | Cheaper option |
|---|---|
| Speed | Overdraft, or an earned-wage-access app through your employer |
| No credit check | An installment loan verified by bank record instead of credit file |
| Few requirements | A credit union small loan, if you are a member |
| Longer to repay | An installment loan over 90 to 120 days |
The one most people in this situation have not considered is the third column of that table. An installment loan from a partner lender in our network requires no credit check either — income is confirmed through a read-only connection to your bank account rather than a bureau file — and is repaid gradually rather than in one lump sum.
On $300, that costs $14.93 across 98 days, against $45 for a payday loan across 14. The comparison is set out in full on our installment loans versus payday loans page.
Questions
Are payday loans ever the right choice?
Yes, in the narrow case described above: a small, genuinely short gap, with repayment already funded, and no cheaper credit available. Outside that case something else is almost always better.
Is 514loans a payday lender?
No. We match applications with a network of partner lenders who provide installment loans — repaid over 90 to 120 days at 22% to 32% APR, not in one payment at 391%. We are not a lender ourselves.
Will a payday loan hurt my credit score?
Taking one usually does not, because most payday lenders do not report to the bureaus. Defaulting on one can, if the debt is sold to a collection agency.
What happens if I cannot repay on the due date?
Fees accrue and the lender may attempt the withdrawal anyway, which can trigger a non-sufficient funds charge from your bank of around $48 on top. This is the point at which the arithmetic usually turns against the borrower.
If you need money quickly but have longer than two weeks to repay it, see what an installment loan costs or start an application. There is no credit check and applying will not affect your score.