Payday loan alternative – what are my options?

Posted on 15 April 2023

Written by Chris Galea

Payday loans were originally intended as a means of tiding Canadians over by lending a small amount of money until the next paycheque, hence the name ‘payday loans’. While they may have been created with good intentions, nowadays payday loans are an extortionately expensive way to borrow money. When they are not paid back in full and on time, they can very quickly escalate into debt. Although there are limits in some provinces on the interest that is applied to payday loans, the interest rate can still be extremely high. For this reason, it is important that you look for a payday loan alternative before committing. Other means of borrowing or debt relief can be much cheaper and prevent your financial situation from spiralling out of control.

Why can payday loans be considered dangerous?

Before assessing the available payday loan alternatives out there, you may be wondering why we are sharing alternatives in the first place. There are a number of reasons why payday loans can cause financial damage instead of helping to improve your financial situation:

  • Extremely expensive – the interest rates charged on payday loans can be truly astronomical, and often up to 400% APR. If you are not careful to repay your payday loan on time, you can quickly find them to be extortionate and very difficult to pay back in full by their due date.
  • Payday lenders can be predatory – often we see payday lenders that will prey upon vulnerable borrowers, who they know may get caught up in the vicious payday loan cycle. This is so that they can benefit from the high interest rate applied to each loan. Borrowers should be aware of these lenders who make it all too easy for them to be approved for a payday loan.
  • The payday loan cycle – unfortunately, it is all too easy to find yourself trapped in a payday loan cycle. This happens when you do not meet the payday loan due date, and find yourself needing to borrow again. Now, you have a payday loan and need to pay high interest on top of the original loan. This can quickly rack up the amount that you owe, and before long you might find yourself in a cycle that is very difficult to break.

Should I consider a payday loan alternative?

There are plenty of cheaper payday loan alternatives that are well worth exploring before you jump to taking out a payday loan. Payday loans are extremely expensive – in fact, it is not unusual to see a 400%+ APR (annual percentage rate), which is surprisingly perfectly legal and within provincial regulations.

What are the main payday loan alternatives?

Applying for financial assistance

You may be eligible to receive financial support for essential expenses like rent and utility bills from local non-profits. You should check any provincial and municipal sites to see what government assistance might be open to you, e.g. Toronto Rent Bank, which offers grants to any residents of Toronto who meet their criteria and may be struggling to keep up with their rent payments. If you are a student struggling with student loan debt, you should check in with your school’s financial aid services to see if you meet the criteria for any student loans or aid.

Advantages of applying for financial assistance:

  • No increase in debt
  • Free support – any help from non-profits will be free or very inexpensive

Disadvantages of applying for financial assistance:

  • Strict eligibility criteria – you may not meet the requirements
  • Additional effort and administration required in order to seek out non-profits that may be able to help

Instalment loan

An instalment loan is a variety of personal loan, often supplied by online lenders. They are usually quick to receive, and have lower interest rates and more generous repayment terms than payday loans. Instead of needing to repay in one lump sum, instalment loans allow you to repay your loan over a defined timeframe. Lenders are most interested in your ability to make your repayments – they will be less concerned by your credit score which you apply, which is ideal if you have a poor credit score.

Advantages of an instalment loan:

  • Instalment loans usually last between 3 and 60 months – this means you can spread out your payments to make them more affordable
  • Bad credit is considered
  • Borrow more than $1,500, which is more than the amount capped on payday loans

Disadvantages of an instalment loan:

  • High interest rates – APRs usually range from between 18% to 47%, and this can be towards the higher end if you have a poor credit score

Compare instalment loans

Below, we have listed some of the most popular instalment loans in Canada:

LoanInterest rateLoan amountLoan termRequirements
LoansLoans.ca Instalment Loan28% – 32% APR + broker fee$300 – $1,0003-12 monthsMinimum income of $1,200 per month, with a minimum employment of 2 months. No credit check needed.
Spring Financial Instalment Loan9.99% – 46.96% APR$500 – $35,0006-60 monthsMinimum income of $1,800 per month, with a minimum employment of 3 months. Minimum credit score must be 500 and above.
Loans Canada Instalment Loan8% – 46.96% APR$500 – $50,0004 – 60 monthsMinimum credit score must be 300 and above.
SkyCap Instalment Loan19.99% – 39.99% APR$500 – $15,0009 – 60 monthsMinimum income of $3,333 per month, and full time employment or pension. Minimum credit score must be 600 and above. You cannot have filed bankruptcy previously.
LoanConnect Instalment Loan32% APR$500 – $2,5003 – 6 monthsMinimum credit score must be 300 and above.
Mogo Instalment Loan9.90% – 46.96% APR$200 – $35,000 6 – 60 monthsMinimum income of $13,000 per year. Minimum credit score of 500 and above. There is also a 100-day money-back guarantee – if you are not happy with your loan, you can pay back the principal and get your 100 days of paid interest and fees back.

Get a line of credit

While it may be difficult to secure a line of credit from a bank – particularly if you have a weak credit score – online lenders may consider you instead. Lines of credit enable you to borrow funds up to a certain limit, and you simply pay interest on the amount that you borrow. It is a good payday loan alternative because it offers more flexibility.

Advantages of a line of credit:

  • Flexible terms – you can pay off your loan in part or in full at any time, without penalty. This can help you to recover your financial situation without the pressure of strict deadlines
  • Cheaper than payday loans, thanks to reduced interest rates

Disadvantages of a line of credit:

  • Expensive means of borrowing – although cheaper than a payday loan, interest rates on some lines of credit can be up to 46.96%
  • The potential to pay more interest. If you take advantage of the flexibility of a line of credit, you may wish to delay making your loan repayments and end up paying much more in interest
  • The potential to end up in greater debt. As you are able to borrow more in a line of credit, it can be tempting to borrow more than you may be able to afford.

Borrowing on credit card

Credit cards generally have much lower interest rates than payday loans, making them a great payday loan alternative. Even if your credit card has reached its limit, you should see if you can increase your credit card limit before taking out a payday loan. A strong history of making payments on time will help strengthen your case for a limit increase.

Advantages of borrowing on credit card:

  • A cheaper payday loan alternative, as most credit card interest rates are much less at around 20% APR
  • The potential to earn rewards like flights and cashback

Disadvantages of borrowing on credit card:

  • You run the risk of not being approved for a credit card or a limit increase if you do not have a good credit score

Debt consolidation

If you are struggling to juggle multiple debts, a debt consolidation loan could be a good payday loan alternative for you. A debt consolidation loan is a new loan that is taken out to condense multiple other unsecured debts you have. As well as condensing your debt and simplifying your payments into a singular monthly bill, debt consolidation loans also have the advantage of reducing and sometimes even clearing your interest.

Advantages of debt consolidation loans:

  • Simplification of your debts – just one payment to make each month instead of multiple different bills to think about
  • The potential to lower your interest rate

Disadvantages of debt consolidation loans:

There is a risk you would not be approved for a debt consolidation loan if your finances are not in a good way

Negotiate with your creditors

The bottom line is that your creditors will want to reclaim as much of their money as they can. In some cases, your creditors might be willing to collaborate with you on a repayment plan. In most cases, it is best to be transparent with your creditors in order to get the best result. If they are aware that you are struggling with your debt but trying to find a solution, it is more likely they will try to help. They could work with you on a repayment plan, or extend the deadline for your debt. It is worth a try, although do note that informal negotiations do not have any legal backing.

Advantages of negotiating with your creditors:

  • No additional debt or cost, as you are not taking on additional funds that you need to repay

Disadvantages of negotiating with your creditors:

  • Creditors do not need to comply with your negotiations – there is no obligation for them to do so either

Ask friends or family for financial support

Another payday loan alternative is to lean on your family or close friends for financial help. It may not be the most comfortable conversation to have, but it may be able to resolve your financial issues completely without the need to take on more debt. Some family members or friends may be more than willing to help. It is a good idea to try and make any agreements as formal as possible, with agreed deadlines for repayments. Typically, this payday loan alternative is interest free although you should still take your repayments seriously to avoid any potential issues.

Advantages of asking friends or family for financial support:

  • Flexible repayments – as the arrangement is typically less formal, you may be able to secure a no interest payment and a repayment term that works for you

Disadvantages of asking friends or family for financial support:

Potentially damaged relationships if you do not follow the agreement on your loan

Consider a form of debt relief

When other payday loan alternatives may not be quite right for your circumstances, your first port of call should be a Licensed Insolvency Trustee. Licensed Insolvency Trustees are the only professionals in Canada legally able to file all forms of debt relief. Gaining legal debt relief is far more effective than taking out a payday loan. Instead of adding to your debt, it can reduce your unsecured debt or completely eliminate it altogether. Here are the most popular forms of debt relief in Canada:

Consumer proposal

A consumer proposal is a legal form of debt settlement that can reduce your debt by up to 80%. It is the process of working with a Licensed Insolvency Trustee to put forward an affordable monthly repayment amount forward to your creditors. Your trustee will negotiate with your creditors on your behalf. If accepted, you will only need to make your monthly repayments for a fixed period of time for up to five years. Consumer proposals have a number of key advantages, including the ability to keep your assets and protection from your creditors via a stay of proceedings. At Spergel, we have a 99% acceptance rate on any consumer proposals we file.


Bankruptcy in Canada is the process of assigning any non-exempt assets you may have over to your Licensed Insolvency Trustee for sale. The proceeds will go towards your creditors, and in exchange you will be cleared of your unsecured debts. It is the best route to a completely fresh financial future, and has the added advantage of putting an immediate end to any legal action from your creditors, including wage garnishments, collection calls, and liens. At Spergel, we have been helping Canadians to file bankruptcy for over thirty years. Unlike other bankruptcy firms, you will be assigned your very own Licensed Insolvency Trustee who will walk you through each step of the process, instead of passing you from person to person.

If you are considering a payday loan alternative, your first port of call should be to book a free consultation with an experienced Licensed Insolvency Trustee at Spergel. Our extremely understand and compassionate team will take the time to review your financial circumstances with you, and help to recommend the best forms of debt relief to improve your finances, instead of creating additional debt. Reach out today – you owe it to yourself.

Chris Galea

Chris Galea

Chris Galea is a Chartered Accountant and Insolvency and Restructuring Professional with over 20 years’ experience as an LIT (Licensed Insolvency Trustee). He is also our resident expert on tax debt, COVID debt, and the region of Saskatchewan, Canada. When he’s not at the office educating people about bankruptcies and consumer proposals, Chris is playing pick-up hockey with his friends, spending time with his family, and learning Spanish!

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