Personal Loan vs. Payday Loan: What's the Difference?
A personal loan in Canada is capped at 35% APR; a payday loan costs up to $14 per $100 borrowed — roughly 365% APR on a typical two-week term. For almost any borrower who qualifies, the personal loan is dramatically cheaper.
How much does a payday loan actually cost?
Since January 1, 2025, the maximum cost of borrowing for a payday loan anywhere in Canada is $14 per $100 borrowed (federal Criminal Interest Rate Regulations). On a typical $500 loan repaid in 14 days, that's $70 — which, expressed as an annual rate, is roughly 365% APR. Payday loans are capped at $1,500 and 62 days, and a $20 maximum fee applies to dishonoured payments in most provinces.
How much does a personal loan cost by comparison?
Personal (instalment) loans are capped at 35% APR federally. Even at the very top of that range — where non-prime borrowers often land — the same $500 borrowed for a month costs roughly $15 in interest, versus $70 for the payday loan. The personal loan also reports to credit bureaus, so on-time payments can improve your score; payday loans generally don't build credit.
Why do people still take payday loans?
Speed and access: payday lenders approve quickly and ask few questions. But that gap has narrowed — several licensed instalment lenders now approve borrowers with low or no credit history and fund the same day by e-Transfer. If you can qualify for an instalment loan at all, it is almost always the cheaper path.
What should you check before either one?
Before borrowing at high cost at all: ask your utility or creditor for a payment plan, check whether your employer offers earned-wage access, and look at local credit unions. If you do borrow, compare at least two licensed lenders on total cost of borrowing — and treat any quote above 35% APR on an instalment loan as a red flag.
Frequently asked questions
Are payday loans legal in Canada?
Yes, in provinces with payday regimes, at a capped cost of $14 per $100 borrowed (since January 1, 2025). Quebec and the territories don't have payday regimes — there, the federal 35% APR cap governs all consumer lending.
Can I get a personal loan with bad credit instead of a payday loan?
Often, yes. Several licensed Canadian instalment lenders approve borrowers with low or no credit history, at rates capped at 35% APR — far below payday pricing. Compare offers for your province before defaulting to payday.