Payday loans generally do not require a guarantor, because the lender relies on your next paycheque rather than a co-signer, but they are among the most expensive forms of credit in Canada.
Payday loans generally do not require a guarantor, because the lender relies on your next paycheque rather than a co-signer, but they are among the most expensive forms of credit in Canada. That is the central point for anyone considering one. A payday lender is not looking for a second person to guarantee the debt; it is looking for evidence of regular income and a bank account. The trade-off is cost: a small advance repaid quickly can carry a charge that, annualised, is far higher than almost any other consumer product.
How payday loans work
A payday loan is a short-term advance, usually for a small amount, that you agree to repay on your next payday, often by pre-authorized debit or post-dated cheque. Because the term is short, the fee looks modest, but the annualised cost is very high. The FCAC payday loans page explains how these products work and why they are an expensive way to borrow.
Payday lending is regulated provincially. Ontario caps the cost of borrowing at $14 per $100 advanced under Ontario Regulation 475/24, and British Columbia caps the maximum charge at 14% of the principal under British Columbia Payday Loans Regulation. Other provinces set their own limits, and the FCAC payday loans page page points to the rules that apply. On top of provincial caps, the federal Criminal Code section 347 sets the criminal interest rate at 35% APR, in force since 1 January 2025, which is a ceiling on interest for credit generally.
Why a guarantor is usually not part of the deal
Payday lenders underwrite differently from banks. They typically verify income, employment, and a bank account, then advance a small sum against the next deposit. Because the loan is small and short, the lender does not usually need a guarantor, and many payday contracts do not include one. Some provinces also restrict certain practices, and the Office of Consumer Affairs publishes consumer information about credit products.
That said, some borrowers ask a friend or family member to help in other ways, such as providing a reference or allowing the lender to debit an account. Those arrangements are not the same as co-signing, but they can still expose the helper to problems if the loan goes wrong. Anyone asked to help with a payday loan should understand exactly what they are agreeing to.
Provincial cost caps at a glance
| Jurisdiction | Maximum cost of borrowing | Source |
|---|---|---|
| Ontario | $14 per $100 advanced | Ontario O. Reg. 475/24 |
| British Columbia | 14% of the principal | B.C. Reg. 57/2009 |
| Other provinces | See the regulator's current published figure | FCAC payday loans page |
The table shows that the cap is a maximum, not a target. A lender may charge less, and the total cost still depends on how the fee is applied and how long the loan runs.
Why payday loans can trap borrowers
The core problem is the rollover. If you cannot repay on the due date, you may renew the loan for another period, paying another fee. Repeat renewals turn a small advance into a large cost. The FCAC payday loans page warns about this cycle, and consumer advocates across Canada have long argued that the product is poorly suited to anyone whose income does not comfortably cover the repayment.
There is also a credit-reporting consideration. Many payday loans are not reported to the credit bureaus in the same way as bank credit, so repaying one on time may not build your credit history. Missing a payment, however, can still lead to collection activity and damage your financial standing. The Financial Consumer Agency of Canada explains how credit reports and scores are built.
Alternatives to consider first
- Ask the lender or creditor for more time. Utilities, telecoms, and some lenders offer payment arrangements.
- Use a credit counsellor. Non-profit credit counselling services can help negotiate a repayment plan.
- Check for government or community assistance. Some provinces and municipalities offer emergency funds.
- Talk to your bank or credit union. A small line of credit or overdraft may be far cheaper.
- Consider a co-signed installment loan. If you have a willing co-signer, a scheduled loan may cost less over time.
Common mistakes to avoid
- Rolling the loan over. Each renewal adds another fee and deepens the cycle.
- Borrowing to cover regular bills. A recurring shortfall needs a budget fix, not more credit.
- Assuming a payday loan builds credit. Many are not reported to the bureaus as repayment history.
- Asking a friend to help without explaining the risk. Any involvement can create problems.
- Ignoring cheaper options. A line of credit, payment plan, or credit counselling may cost far less.
Who this suits
Payday loans are generally a poor fit for anyone with a persistent shortfall, and they are not designed for borrowers who need to spread repayment over time. They may, in narrow cases, bridge a genuine one-time gap that will be closed within days, but the cost is high and the risk of rollover is real. Borrowers who need more time should look at a co-signed installment loan or a personal line of credit instead. See our guides to bad-credit loans with a co-signer and installment loans with a co-signer for alternatives.
When a payday loan seems like the only option
Payday loans are often taken out in a moment of pressure, when a bill is due and the money is not there. In that moment, the fee can look small next to the immediate problem. The difficulty is what follows: if the next paycheque is already committed, the loan may be rolled over, and each renewal adds another charge. That is how a short-term gap becomes a long-term cost.
It helps to have a plan before the pressure hits. A small emergency fund, even a modest one, reduces reliance on high-cost credit. Knowing which bills can be deferred, and which lenders offer hardship programs, matters too. A non-profit credit counsellor can help negotiate with creditors, often at no cost. The FCAC payday loans page explains the product's risks, and the Office of Consumer Affairs publishes general consumer information. If a co-signed installment loan is available, it may spread the cost over a term you can actually manage.
Nothing here is financial or legal advice. For help with a payday-loan problem, contact a non-profit credit counsellor or the consumer protection office in your province.