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Pawn loans vs. payday loans: What you need to know

When comparing pawn shop loans and payday loans, don't settle on one until you know the facts.

Life doesn’t always allow for perfect financial health. When you need cash to get you through to your next payday, a pawn loan or payday loan could be a viable option. Both types of loans are fairly easy to get — they usually don’t require stringent credit checks. However, they can cost you a lot in fees and interest.

Let’s take a look at both pawn loans and payday loans so you can decide which is right for you.

Are pawn shop loans the same as payday loans?

No, technically pawn shop loans and payday loans are not the same thing, but they can often be used to for the same purpose – to provide a little extra cash between paycheques. Although both pawn shop and payday loans can get you fast cash in a pinch, payday loans are unsecured and usually come with much higher interest rates compared to secured pawn shop loans.

What is the difference between a payday loan and a pawn shop loan?

The main difference between a payday loan and a pawn shop loan is that payday loans don’t require collateral to secure the loan, while pawn shop loans must be secured. The direct result of that is that payday loans often come with higher interest rates, –generally ranging from 390% to 780% – whereas pawn shop loan interest rates can vary from as low as 5% to 200% or more.

How pawn loans work

A pawn loan is a secured loan, meaning you put up an item of value as collateral for the loan, usually items like jewelry or electronics. The amount of the loan will vary based on provincial and territorial regulations and the collateral you pawn.

The loan you’re approved for will be a percentage of the item’s value, usually between 20% and 60% of the resale value, after the lender accounts for storage, security and other costs. Repayment terms are typically from 30 days to a few months. If you default on the loan, you risk the item being sold to cover the balance.

What is collateral for pawn shop loans?

Collateral is something you own — such as jewelry, electronics, musical instruments, tools or antiques — that a pawn shop will use to secure your loan. If you default on the loan, the pawn shop can take ownership of your collateral and even sell it.

How payday loans work

Payday loans are small unsecured loans offered in-store or online that must be paid off at the end of the term. For in-store loans, you typically receive your funds immediately after signing the loan documents. For online loans, you typically receive funds by bank transfer as soon as within an hour or up to 1 business day after your approval. You pay back the loan via direct debit on the due date.

For both loans, applications can take about 10 minutes online, with some lenders offering instant approval. While good credit is not a requirement, you do need to prove that you’re able to pay back the loan.

⚠️ Warning: Be cautious with payday loans
Payday loans are expensive. If you're experiencing financial hardship call Credit Counselling Canada for free financial counselling (Monday-Friday 8:00am-5:00pm at +1 866-398-5999). Consider alternatives instead of a payday loan:
  • Local resources. Government programs and nonprofits offer free financial services and help with food, utilities and rent.
  • Debt relief companies. There are services to help you reduce your debt payments.
  • Payment extensions. Talk with bill providers about longer payment plans or due-date extensions.
  • Side jobs. Sell unwanted items online, sign up for food delivery and more.
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  • Loan amount: $100 - $1,500
  • Loan term: Up to 62 days
  • Borrowing costs: Varies by Province (Between $15-$19 per $100 borrowed)
  • Bad credit borrowers: OK
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Compare payday loan options

Check the websites of any lenders you’re interested in to confirm they operate in your province or territory of residence.

Name Product Loan Amount Loan Term Interest Rate Turnaround Time Serviced Provinces
Cash Money Payday Loan
$100 - $1,500
5 - 40 days
Varies by province
As little as 15 minutes with INTERAC e-Transfer
BC, NS, ON, SK
Apply for your first $300 payday loan at a $20 cost (excludes SK applicants).

You'll need to be 18 years of age or older and have a net income of at least $1,000/month. Residents of MB and NB must apply in-store for a loan.
iCASH Payday Loan
$100 - $1,500
7 - 62 days
Varies by province
As little as 2 minutes with INTERAC e-Transfer
AB, BC, MB, NB, NS, ON, PEI
Get up to 20% in cash back once your payday loan is fully repaid. Conditions apply.

To be eligible, you'll need to be at least 19 years of age and have a net income of at least $800/month deposited into your bank account.
GoDay Payday Loan
$100 - $1,500
Up to 62 days
Varies by Province
As little as 2 minutes with INTERAC e-Transfer
AB, BC, MB, NB, NS, ON, PEI, SK
To apply, you'll need to be a Canadian resident over the age of 18 with a valid email address, phone number and an open bank account with a Canadian bank or credit union.
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Maximum borrowing costs per province
Always refer to your contract for exact repayment amounts and costs as they may vary from our results.
Province Maximum allowable cost of borrowing
Alberta, British Columbia, New Brunswick, Ontario & Prince Edward Island $15 per $100 borrowed
Manitoba & Saskatchewan $17 per $100 borrowed
Nova Scotia $19 per $100 borrowed
Newfoundland and Labrador $21 per $100 borrowed
Northwest Territories, Nunavut & the Yukon $60 per $100 borrowed
Quebec Limit of 35% annual interest rate (AIR)

Pawn loans vs. payday loans: The application process

Pawn loans

The application and approval process for a pawn loan is simple. First, take in an item of value to be appraised. Once the lender has determined its worth, you’ll present government-issued ID and complete any paperwork.

Payday loans

While pawn loans can only be done in person, payday loans are accessible online. They require you to complete basic information about yourself and provide proof of income.

  • Application process takeaway

Both loans offer a fairly easy application process, but only payday loans can be done both online and in person. Pawn loans don’t require proof of how you’ll repay the loan.

Pawn loans vs. payday loans: Turnaround time

Pawn loans

It takes about 10 minutes to receive a pawn loan, depending on how long the appraisal takes. There is no credit check to wait for, so once you’re given an amount and agree to the repayment terms, you can leave the store with cash in hand.

Payday loans

Payday loans generally take 5-10 minutes to apply for, and approval can be instant. Unlike a pawn loan, you must meet eligibility requirements that include your ability to repay the loan. You can walk out of a physical payday loan store with cash. Whereas online application funds typically arrive in your account in as little as one hour, via e-transfer, or up to one business day later.

  • Turnaround time takeaway

Because you’re able to walk out with money in your hands the day you apply, pawn loans and in-store payday loans can be your quickest options.

Pawn loans vs. payday loans: Interest rates

Pawn loans

The interest rates and finance charges for pawn loans are typically between 5% and 200%. If you’re unable to pay back the loan, you may be able to get an extension, if your province or territory allows it, but loan extensions come with additional costs.

Payday loans

Payday loans have higher associated costs. Interest is charged in the form of fees and can be anywhere from $15 to $60 for every $100 borrowed. Most provinces have imposed regulations on a loan’s maximum APR allowed. If you fail to pay off your loan and need to refinance the remaining balance, you may pay further fees and charges. And if you don’t have enough funds to cover loan repayments, you could be charged an insufficient funds fee ranging from $20-$50 from both your bank and your lender.

  • Interest rates takeaway

Pawn loans may offer lower rates than payday loans, but those lower rates come with a risk of losing your collateral if you default on the loan.

Pawn loans vs. payday loans: Loan amount

Pawn loans

Pawn loans don’t come with a lot of options, because the loan amount will vary based on the value of what you use as collateral. Your collateral is usually appraised at 20-60% of the item’s resale value. So if you have a piece of jewellery worth $1,000, the pawn shop might offer you a loan for $200-$600. Typically, pawn shop loans run around $150 or less, although some will offer up to $10,000 or more depending on the collateral you provide. Some pawn shops also offer auto title loans, but not all do.

Payday loans

Payday loans are typically given for small-dollar amounts, usually under $1,000. However, depending on the lender and the provincial regulations where you live, you may be able to get a payday loan up to a maximum of $1,500. Some payday lenders even provide other loan services, such as installment loans and title loans.

  • Loan amount takeaway

Pawn loans are limited by the items used for collateral, but can range anywhere from $150-$10,000. Payday loans can offer a wider variety of smaller loans, but only up to $1,500.

Case study: $100 to get through the next two weeks

Jason needed to pay off an unexpected car repair. Unfortunately, he spent most of his money on groceries just before his car broke down. Luckily, Jason had a Nintendo Switch he received as a birthday gift that he could use as collateral for a pawn loan. He compared the options offered by his local pawn shop with an online payday lender.

Pawn loanPayday loan
Loan amount$100$100
Loan term30 days14 days
Finance fee$10$15
Total due$110$115

In this case, the pawn store loan offered a better deal for Jason. Though he would be without his Nintendo for a few weeks, he’d also be able to pay back the loan early without any penalties.

Pawn loans vs. payday loans: Renewal options

Pawn loans

Most pawn shops allow you to renew a pawn loan by paying the lending fee from the first loan. Then the loan typically begins again for the same amount of time with the same terms and conditions.

Payday loans

While it’s illegal in most provinces to “roll over” your payday loan to extend it, so whether or not you have that option will depend on where you live. If you can roll over your loan, keep in mind that your fees will continue to accumulate. So make sure to check out the laws in your province or territory before taking out a payday loan that you may not be able to pay back.

Note that most provinces have laws giving you a “cooling off period” in which you can change your mind about a loan within a short time after agreeing to it. This time period is often 1-2 business days. Read our guide to payday loan laws across Canada to find out exactly what regulations apply to payday loans where you live.

  • Renewal option takeaway

Pawn loans generally have more flexible loan renewal options than payday loans due to provincial regulations. Still you should think hard before taking out a loan you may not be able to pay back on time. It’s easy to fall into a loan debt cycle where you take out another loan to pay for the one you just had — and then end up trapped in this never-ending series of loans.

Bottom line

Both pawn loans and payday loans can get you fast cash, but each can be filled with financial risk. And neither are long-term solutions. If you’re looking for quick cash and have something of value, a pawn loan may be faster and more cost-effective. Of course, fees will depend on where you live and the lender you use.

If you’re in a cash emergency, it may be a good idea to explore some payday loan alternatives before settling on a pawn loan or payday loan.

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