If you’re short on cash, you might be considering taking out a payday loan. You may also be wondering: Are payday loans a scam? Let’s take a look at why payday loans have a poor reputation, as well as common scams you should watch out for. Finally, we’ll discuss how you can get a legitimate payday loan from a reputable lender in Canada.
Are all payday loans scams?
Not all payday loans are scams – there are legitimate lenders that abide by any provincial laws in place and offer financial help to those in need.
However, since payday loans can be extremely expensive, this may be why they have acquired a reputation for being scams. On average, you’ll pay $15 to $25 per $100 you borrow, depending on the province or territory you reside in. This calculates out to at least a 3-digit annual percentage interest rate (APR), usually sitting somewhere around the 400% mark.
The cycle of debt
Payday loans are also notorious for trapping consumers in endless cycles of debt. Since these loans are so expensive, borrowers often have trouble paying them off, causing them to take out more payday loans to pay off their debts.
With this said, there are payday loan schemes that really are scams. To protect yourself, you’ll need to know what to watch out for. Jump to list of scams.
⚠️ Warning: Be cautious with payday loans
High-cost payday loans are unsustainable for borrowing over a continued period of time and are expensive as a means of longer-term borrowing. View payday costs and regulations by province here. 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). You may also want to consider payday loan alternatives.
Maximum borrowing costs of payday loans per province
Always refer to your contract for exact repayment amounts and costs.
Province
Max. cost of borrowing a $100 payday loan
Cooling off period to cancel loan
Max. penalty for returned cheque or pre-authorized debit
Alberta
$15
2 business days
$25
British Columbia
$15
2 business days
$20
Manitoba
$17
48 hours excluding Sundays and holidays
$20
New Brunswick
$15
48 hours excluding Sundays and holidays
$20
Newfoundland and Labrador
$14
2 business days
$20
Nova Scotia
$15
Next business day (2 days for online loans)
$40 (default penalty)
Ontario
$15
2 business days
$25
Prince Edward Island
$15
2 business days
N/A
Quebec
Limit of 35% AIR
N/A
N/A
Saskatchewan
$17
Next business day
$25
Are other payday loan companies legitimate?
Yes, myonlinecash.ca appears to be a legitimate company. It clearly shows its phone number, terms of conditions, privacy policy, loan terms and fees on its website, and has a well-developed website overall. We also verified that myonlinecash.ca is a registered business with the Ontario business registries. Compare other legitimate payday loan lenders.
Information above is as of December 13, 2023.
Cashkrab.com appears to be a legitimate company. While not exactly a payday loan, Cashkrab.com advertises lines of credit up to $1,000. We like that Cashkrab.com lists its contact information, has a well-developed website, has a privacy policy and clearly outlines loan fees. We’ve verified that it is a registered with British Columbia’s public directory of organizations. That said, be aware that we couldn’t find any verified Cashkrab.com customer reviews online. Compare other legitimate payday loan lenders.
We’re not signing off on Prestige Payday Loan’s legitimacy. We like that it shows its website terms and conditions; however, Prestige Payday Loan does not have an office address or phone number on its website, and the website itself is underdeveloped. We also don’t like that Prestige Payday Loan offers payday loans up to $2,000, which is higher than the government-imposed legal limit on payday loans of $1,500 across most of Canada.
Prestige Payday Loan also advertises a high Trustpilot score, but in fact has zero reviews on Trustpilot’s site. Finally, we did not find it in the Ontario, Alberta, BC or Canada business registries. We did find a listing in the Québec enterprise register, but we’re still not signing off on it because of the other red flags. Compare legitimate alternatives.
Information above is as of December 13, 2023.
We’re not signing off on Givemecashtogo.ca’s legitimacy. The company doesn’t list any contact information (like an office address, phone number or email) on its website. While the website does have a privacy policy and terms and conditions, it doesn’t list any fees, interest rates or loan amounts. We also could not find Givemecashtogo.ca’s business registration in the Ontario, Alberta, BC, Québec or Canada business registries. Compare legitimate payday loan lenders here.
Information above is as of December 13, 2023.
We’re not signing off on StarPay Loans’ legitimacy. We like that it provides an email address; however, StarPay Loans does not provide its office address, phone number, privacy policy or terms and conditions, and the website is underdeveloped. StarPay Loans also advertises payday loans up to $2,000, which is higher than the government-imposed legal limit on payday loans of $1,500 across most of Canada.
We also did not find it in the BC, Alberta, Ontario or Canada business registries. We found a Star Pay Loans registration in the Québec business registry, but considering the other red flags on this company’s site, we’re still not giving it a sign off. Compare legitimate alternatives.
Information above is as of December 13, 2023.
How payday loan scams work and how to avoid them
Like many financial industries, the payday loan industry has scammers that prey on people who desperately seek money. Most scams revolve around consumers unwittingly giving out sensitive information or sending money to unscrupulous individuals.
Here are 3 common payday loan scams and how to avoid them:
The scam: Charging an upfront fee
How it works: A company posing as a payday loan lender will guarantee you a loan if you pay an upfront fee first. The company may ask for the money to be sent as a wire transfer, money order, gift card or some other form that will be hard for you to get back once sent. After the company receives the upfront fee, they will disappear without giving you the loan they promised.
How to protect yourself: To avoid this scam, don’t give any money to a lender in order to get a loan. Legitimate payday lenders do not charge fees before you’re approved for a loan. Any one-time fees for establishing the loan should only be charged after you’re approved and you have received your funds. Also, be wary of guaranteed offers. A legitimate lender cannot guarantee a loan without assessing your full application.
The scam: Payday loan collection
How it works: In this common payday loan scam, someone will call you claiming to be a debt collector. They may threaten you with legal action or arrest if you don’t pay. The caller may also have your personal details – your bank account number, for instance, or even your Social Insurance Number. Having this information doesn’t mean the call is legitimate. More likely, it means that someone else sold your information to a third party.
How to protect yourself: Don’t give out any personal information over unsolicited calls, and don’t send money to anybody claiming to be a payday loan collector. If you do currently have a loan, call your lender directly to verify the terms of repayment.
The scam: Fake online form
How it works: In this scam, you’re asked to fill out an online form to receive a payday loan. After you’ve entered your bank account information, the operators of the website won’t actually extend a loan to you. Instead, they’ll enroll you into some type of membership program that will take money from your bank account.
How to protect yourself: To avoid falling prey to this type of scam, thoroughly research any payday loan website you’re thinking about using. Additionally, read all of the fine print to make sure you understand the terms and conditions.
How to protect yourself from a payday loan scam
Compare multiple payday loan providers. It may be difficult to gauge the legitimacy of one payday loan website by itself, but you may be able to spot red flags when you look at multiple websites and draw comparisons between them.
Look for information and reviews online. Negative information (or even the lack of information) online can point to a payday loan scam. Always check for contact information and head office locations.
Be wary of unsolicited phone calls. Don’t accept a payday loan offer through the phone – there’s probably a better deal elsewhere. Additionally, there’s no way you can verify the legitimacy of the caller.
Understand the laws governing payday loans in your province. Knowing the payday loan regulations of your province will help you gauge whether a payday loan operator is legitimate or simply trying to scam you.
Check the lender’s licence. Under provincial Payday Loans Acts, payday lending businesses must obtain valid payday loan licences. Legitimate lenders will prominently display their licences in the provinces they operate in on their websites and as a prompt before borrowers proceed with their application.
Be wary of offers that are too good to be true. Examples include guaranteed approval, low rates for bad credit and no credit checks. Keep in mind that no credit checks can be a red flag, but there are also legitimate lenders that don’t do credit checks. In such cases, they’ll focus on your income to determine your eligibility.
What to do if you've been scammed
Sometimes it can be hard to tell a scam from the real thing. If you think you’ve been scammed, there are steps you can take to protect your personal information and your money from being stolen. Consider the following:
Contact the police. Your local police should have a non-emergency number that you can call when you know you’ve been scammed. File a police report in order to legitimize the situation. Your bank and credit bureau will want to see that you’ve taken this action, so it’s an important first step.
Report the lender to your provincial consumer protection agency. Contact your provincial consumer affairs agency, (like Consumer Protection Ontario or FCSC in New Brunswick, for example) to report the lender. You can typically call or email your complaint to the agency.
Contact your bank. Since even legitimate lenders will ask for your bank account information, you may have given this to a scammer. Even if they haven’t stolen anything from your account yet, putting your bank on alert will help them track your account for any unusual activity.
Contact Service Canada. If you’ve given out your Social Insurance Number to a scam artist, you’ll need to contact Service Canada as soon as possible to prevent identity theft.
Contact the two credit bureaus. They can put a freeze on your credit report in case any suspicious queries pop up. This will help prevent future damage from scammers trying to use your credit to buy expensive items.
These steps might not be able to get you your money back, but they will help you to protect your identity. The best way to prevent a scam is to know what one looks like, so familiarize yourself with this page in order to know what to avoid in the future.
Look at these factors before taking out a payday loan
The fine print. Before taking out a loan, you’ll need to agree to a lender’s terms and conditions. Take your time to read the fine print before agreeing to anything. If there’s anything you don’t understand or don’t agree with, don’t be afraid to ask questions or look elsewhere for a loan. You’re not obligated to sign a loan contract.
The interest rate. A reputable lender will tell you a loan’s interest rate up front. Once you know the rate, you can calculate how much you’ll pay in interest. Consider your budget, including your income and expenses, and think about your ability to repay the loan.
Fees. Make sure you understand any fees you’ll pay to take out a loan. Some lenders add hidden fees to their loans, so confirm the total amount you’ll pay before you agree to anything. For example, some payday loans may come with fees for loading funds onto prepaid debit cards.
Payday loan alternatives
Since payday loans can be very expensive, it’s a good idea to consider your alternatives. Even if you need cash right away, a payday loan isn’t your only option.
Other options include:
Instalment loans.An instalment loan is a type of personal loan offered by online lenders with lower APRs and longer repayment terms than payday loans. Instead of making one lump sum payment, you will make repayments in instalments over a set period of time.
Lines of credit. With a line of credit, you can borrow up to a limit and pay interest on the amount you borrow. It’s a decent payday loan alternative because of its open term.
Bad credit personal loans.Those with a credit score below 560 can apply for and receive a bad credit loan they will pay back in instalments over time. This is a decent payday loan alternative due to its lower APRs and longer terms.
Debt consolidation.Consolidating your debt reduces the confusion of having multiple payments and may even offer a lower monthly payment while you eliminate your debt. You could save on interest and pay off your debt faster.
Bottom line
There are plenty of legitimate payday loan lenders in Canada, but there are also many disreputable companies in the industry. Be sure to do your research and thoroughly compare your options for a payday loan before applying.
Compare legitimate payday loans
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Frequently asked questions about payday loan scams
Look at the payday loan provider's website to see if it is built out and clearly shows contact information (like a phone number, email and address), loan terms and fees. Make sure the lender abides by all payday loan regulations, like not exceeding the maximum legal payday loan amount of $1,500. It's also important to check if the lender has a registered business license in your province. You can start your search for a lender's business license through Canada's Business Registries. Also ensure your loan contract is in the same language you used to communicate with your lender.
Although there are many legitimate and reputable payday loan lenders, payday loans are known to be incredibly expensive. It's not uncommon to see an APR higher than 400%. For this reason, it's a good idea to investigate other financing options before deciding on a payday loan.
Payday loans are usually borrowed for a very short period of time. As the name implies, a payday loan is typically due when you receive your next pay cheque from work. Because of this, lenders want to make a substantial profit from each loan and so they charge excruciatingly high interest rates and fees.
Start by contacting a reputable credit counsellor. They'll help you fix the structural issues that led to your debt. You may even find ways to gather savings right away that will help you avoid taking out a payday loan.
Carmen Chai is a freelance writer at Finder, specializing in financial products. She is an award-winning Canadian journalist who has lived and reported from major cities such as Vancouver, Toronto, London and Paris. She has reported on personal finance, mortgages, and banking products for nearly a decade.
Here’s a look at the top reasons why lenders might decline your application for a payday loan. Plus, find out how to increase the chances that your next application will be approved.
Your helpful guide to payday loan interest rates in Canada and how to compare loans on the market.
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