What is a Payday Loan?

A payday loan is a very short-term, high-cost loan that’s meant to carry you from now until your next paycheque.

You borrow a small amount—often a few hundred dollars—and agree to pay it back quickly, usually on your next payday, plus fees that make the real cost very expensive.

A Safe Way to Handle Everyday Money

If you find yourself tempted by payday loans because cash is tight, it can help to switch your day-to-day account to something more predictable like KOHO Essential:

• It has a low monthly plan fee that can be waived when you set up direct deposit or add +$1,000.

• Use a prepaid Mastercard® for groceries, bills, subscriptions, and travel.

• Grow your savings with a 2% interest savings rate on your entire balance.

• Earn 1% cash back on groceries, eating & drinking, and transportation.

• You can subscribe to Credit Building for $10/month, it's an affordable way to build your credit history.

• Enjoy unlimited transactions and free e-transfers (never worry about fees when sending money to someone again).

How Payday Loans Work

Typically, a payday loan looks like this:

• You borrow a small amount (for example, $300–$1,000).

• You give the lender permission to take the money back from your bank account or paycheque.

• You pay very high fees or interest—much higher than regular loans or lines of credit.

• The full amount is due very quickly, often in 14–31 days.

They’re marketed as quick and easy, but the cost per dollar borrowed is usually extremely high.

Why Payday Loans Are Risky

Payday loans can lead to:

• A cycle of borrowing if you can’t repay on time and need another loan to cover the first one

• Paying far more in fees than you borrowed

• NSF fees and extra charges if there isn’t enough money in your account when the lender tries to pull the payment

They’re meant to be a one-time emergency tool, but a lot of people end up using them repeatedly.

Better Alternatives to Consider

Instead of going straight to a payday lender, try:

• Tightening your budget for a month and cutting non essentials

• Asking your employer about pay advances or flexible pay

• Using lower-cost credit (like a line of credit or a structured payment plan) if you qualify

• Building a small emergency fund using KOHO Essential

Over time, even a small savings habit is better than repeatedly paying huge fees just to get by.