Payday Loan

Quick Definition

A small, very short-term loan with extremely high borrowing costs.

Full Explanation

A payday loan is a short-term loan, usually a few hundred dollars, due on your next payday. Provinces cap the cost (for example $14–$15 per $100 borrowed in several provinces), but that still equals an annualized rate of several hundred percent. Payday loans are best avoided; credit union small loans, employer advances or a line of credit are far cheaper.

Related Terms

APR (Annual Percentage Rate)

The true yearly cost of borrowing, including fees and interest.

Personal Loan

An unsecured or secured loan for personal use, repaid in fixed monthly installments.

Total Cost of Borrowing

The entire amount paid above the principal over the life of a loan.

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