If you find yourself short on cash with bills coming due, a payday loan may feel like the only way to come up with the funds you need to cover your immediate expenses.
Payday loans are short-term loans that enable you to borrow against your upcoming paycheck. They are easy to access because they don’t require a credit check but have very high costs. While the high cost of these loans may seem like a manageable trade-off for putting food on the table or covering your utility bills, they aren’t your only option when you need money in a pinch.
There are many more affordable ways to get a last-minute cash infusion when needed. Tools like bank loans, overdraft protection, or cash advance apps are more affordable than a payday loan, and they are just a few of your options.
Keep reading to discover a few alternatives to payday loans in Canada to ensure you can access cash when needed.
Alternatives to Payday Loans in Canada
Credit Union Loans
Credit union loans are a convenient way to borrow money at lower interest rates. These loans are typically for smaller amounts (under $5000). Credit unions often offer loans at lower interest rates with more favorable terms than a traditional bank. If you have bad credit, there’s a better chance of being approved for a loan through a credit union than a bank.
The caveat with credit union loans is that you must be a credit union member and undergo a loan application process before you receive funding. This isn’t a good option if you need money last minute. But, if you anticipate needing a little bit of extra money on top of your paycheck in the future, taking a proactive approach and applying for a credit union loan may be worthwhile.
Pros:
- Lower interest rates than a typical bank loan
- There are usually options for borrowers with bad credit
Cons:
- Must be a member
- Can’t access a loan last minute
Bank Loans
A bank loan is a promising way to ensure you have access to extra money in a financial emergency. Bank loans have lower interest rates than a payday lender would offer, and the loan terms are typically longer, giving you more time to pay the money back.
Personal loans are granted based on your credit score and borrowing history, so this option may only be available to borrowers with good credit. The application process may take several business days before you are approved and the loan is funded, so this option won’t work if you need cash immediately.
Pros:
- Longer loan term, more time to pay back
- Lower cost to borrow than payday loans
Cons:
- Must pass a credit check
- Application process takes time
Cash Advance Apps
Cash advance apps can be a convenient alternative to payday loans, especially if you only need a few hundred dollars. These apps don’t require a credit check. Instead, they make lending decisions based on your income and paycheck schedule and enable you to access funds at a more favorable rate than a payday loan.
Bree for example, enables you to borrow up to $250 with zero percent interest and has zero mandatory fees. Bree can help you cover emergency expenses while preventing overdrafts and NSF fees. You can access your cash within a couple of days or pay a small fee for a transfer within minutes. Bree also offers a budgeting tool that helps you plan your future expenses to avoid cash shortages and unnecessary fees.
Pros:
- No credit check required
- 0% interest charged
Cons:
- Can only borrow small amounts
- You must pay a fee for instant access to funds
Online Lending Platforms
Online lending platforms, also known as peer-to-peer (p2p) lending platforms, work as marketplaces for individual lenders to match up with borrowers. You can take out unsecured or secured personal loans through these platforms. P2P loans typically offer a lower annual percentage rate (APR) than a bank loan or payday loan, and they tend to be more open to borrowers with bad credit than a bank would be.
Pros:
- Advantageous interest rates
Cons:
- You won’t receive funds immediately
Borrowing From Friends or Family
Asking friends or family for a small, short-term loan requires swallowing your pride, but it may be preferable to the high cost of a payday loan. By borrowing money from a loved one, you can avoid fees and benefit from a more flexible repayment schedule.
When approaching your loved one about borrowing cash, outline a clear plan to repay what you owe, as this will give both of you peace of mind.
Pros:
- Avoid high fees, making it easier to pay back expediently.
Cons:
- It may be uncomfortable to ask
Bad Credit Loans
Bad credit personal loans make it possible for individuals with poor credit to secure personal loans, but the caveat is that they have high interest rates, so borrowing is costly. However, making on-time payments on these loans can help build your credit over time.
Bad credit loans may be secured (meaning you must provide collateral to access the loan) or unsecured. Using a bad credit personal loan to bring your bills up to date may enable you to avoid late fees or additional interest on unpaid bills.
Pros:
- Possible to be approved with bad credit
Cons:
- High cost of borrowing
Local nonprofits and charities
Nonprofits and charities often offer financial support or other assistance to individuals in need, especially if you need help putting food on the table or covering expenses related to securing employment. Community centers or local churches often run food banks or even serve hot meals weekly. These organizations may be able to assist with transportation expenses or clothing items as well.
The Canada Benefits Finder is a helpful tool to identify government-run programs in your province.
Pros:
- No cost to access these services
Cons:
- You may not be able to receive cash directly
Pawn Loans
Pawnshops often offer loans in exchange for an item you provide as collateral. If you have something of value, like a piece of jewelry, you may be able to arrange such a loan. The pawnshop will assess your item’s value and lend you cash while holding onto it. There are typically fees or interest applied to the amount they lend you.
When you pay the loan back, they’ll return your item.
Pros:
- Quick way to access cash
Cons:
- You must have something of value to offer
Debt Consolidation Loans
Debt consolidation loans are lump sum, term loans that are granted to pay off existing debt. Then, you can repay what you owe in one monthly payment rather than balancing several payments.
Debt consolidation loans only make sense if you can secure a loan at a lower interest rate than the debt you are currently paying, which may not be possible if you have a bad credit score. These loans can be beneficial because they help you catch up on payments and set you on the path to rebuilding your credit.
Pros:
- Offer you a fresh start at paying off debt
Cons:
- Only worthwhile if you qualify for a favorable interest rate
Credit Counselling
Credit counselling is a good alternative to payday loans if you struggle to stay on top of debt payments. Credit counselors will work with you to review your income, expenses, and debt payment obligations. They will then create a monthly budget and debt repayment plan for you.
Credit counsellors can negotiate with creditors to find a monthly payment amount and a repayment timeline that works with your new budget. Some credit counsellors do charge fees, while others work through non-profits free of charge.
Pros:
- Creates an actionable debt repayment plan
Cons:
- Doesn’t give you access to immediate cash
Get Overdraft Protection
Overdraft protection comes at a cost, but it’s preferable to letting your bills become delinquent, which will damage your credit score. If you often find yourself coming up short between paydays, overdraft protection is a practical alternative to a payday loan.
There is typically a dollar limit to the overdraft available, and you must pay a flat monthly fee plus interest on the amount you use. Still, these costs are inevitably lower than what you’d pay on a payday loan.
Pros:
- Offers wiggle room between paychecks
Cons:
- You must pay a flat rate plus interest on what you borrow
Negotiate with your creditors
You may be surprised to find that your creditors are amenable to negotiations. Ultimately, they want to see their money paid back (yes, with interest), and if adjusting your repayment schedule enables you to make payments, they will be willing to work with you.
They can break your payments into smaller, more frequent instalments or forgive late payment fees to make it easier for you to catch up.
Pros:
- Stay on good terms with creditors
Cons:
- Takes time to contact them and make arrangements
The Bottom Line
Payday loans aren’t your only option in Canada if you need fast cash between paychecks. Cash advance apps like Bree enable you to access cash quickly to cover emergency expenses. But the best alternative to payday loans is creating and living within a fixed monthly budget. If you tend to be short on cash regularly, we encourage you to explore the options above and look for ways to increase your income!
___________
Sources:
https://www.canada.ca/en/financial-consumer-agency/services/loans/payday-loans.html
https://loanscanada.ca/loans/how-to-get-a-loan-from-a-credit-union/
https://loanscanada.ca/loans/best-peer-2-peer-lenders-in-canada/
https://www.solveyourdebts.com/blog/what-is-credit-counselling-how-it-works/
Join our newsletter to get the latest updates
