Short-Term Loan Options in Canada: A Complete Comparison

What counts as a short-term loan

A short-term loan covers a gap you can close in weeks or months rather than years: a repair, a bill that landed early, a paycheque that lands late. Four products do this job in Canada, and they are priced so differently that choosing between them matters more than choosing the lender within one of them. The payday loans market is the fastest of the four and the most expensive, which is why it earns its own rules and its own fee cap.

Payday loans

A payday loan is legally defined: $1,500 or less, repayable in 62 days or less, usually due on your next payday. You need proof of income and a bank account, approval is fast, and the cost is a flat fee rather than an interest rate. Since January 1, 2025 that fee is capped at $14 per $100 borrowed in every province that permits payday lending, set federally under the Criminal Code.

What that costs in practice: borrow $300 for 14 days at the $14 cap and the fee is $42. Annualised, that is roughly 365%, which is why a payday loan only makes sense when the alternative is genuinely more expensive.

Cheaper routes usually exist, even with weak credit. Start with the payday loan alternatives before you commit.

Source: Canada Gazette, Criminal Interest Rate Regulations SOR/2024-114, January 2025 to August 2026.

The fee reads small and annualises large. Fourteen dollars per hundred over two weeks works out to several hundred percent per year, which is why every other option on this page costs less for anyone who can wait even a few days longer.

Instalment loans

An instalment loan is a fixed amount repaid in equal payments over months or a few years, at an interest rate the law caps at 35 percent APR. Online lenders decide quickly, often the same day, and many lend to fair and poor credit. Unlike a payday loan, on-time payments are typically reported to the credit bureaus, so the loan can build your file while it runs.

Compared with a payday loan, you give up a day or two of speed and you take a credit check. In exchange you pay far less overall. The worked example below shows the difference in dollars.

Lines of credit

A line of credit is approved once and drawn on as needed, and you pay interest only on the balance you use. It is the cheapest of the four for ongoing or unpredictable expenses, and the hardest to get: banks and credit unions price the best lines for good credit. The risk is behavioural rather than contractual, because available credit that never closes invites balances that never close either.

Credit card cash advances

A cash advance needs no application if you already hold the card, which makes it the fastest option after payday. The price is a per-advance fee, a higher rate than purchases carry, and interest that starts the day you draw with no grace period. For a few days it can be the cheapest real option; carried for months it competes with the most expensive.

The four options side by side

What $1,500 actually costs

Take the payday maximum, $1,500, and price it both ways. On payday terms the fee is $14 per $100, so $210, due with the principal in as little as two weeks. As an instalment loan at 35 percent APR, the highest rate any non-payday lender can legally charge, the same $1,500 over six months costs about $157 in interest across the entire term. The most expensive legal instalment loan costs less over half a year than a payday loan costs in a fortnight. Most short-term borrowing is smaller than the maximum, for what it is worth: across Smarter Loans personal loan applications from August 2025 to July 2026, requests of $1,500 or less averaged $552.

To run the same arithmetic on your own amount and timeline, the personal loan calculator shows the payment and total interest for any rate and term.

How to choose

Match the product to the shape of the problem. A one-off expense with a clear repayment date suits an instalment loan. Ongoing or unpredictable costs suit a line of credit if you can qualify. A gap of a few days that a card can bridge suits a cash advance you clear immediately. A payday loan fits only when the cost of waiting exceeds $14 per $100, which is rarer than it feels at the moment the fridge dies.

One application shows you instalment offers from multiple lenders without a separate hard inquiry from each.

Sources

• Canada Gazette, SOR/2024-114, for the criminal interest rate and the $14 per $100 payday exemption in force January 1, 2025.
• Ontario, Payday loan: your rights, for provincial borrower protections referenced above.

Related reading: payday loan alternatives in Canada and how payday loans work in Canada.