Borrowing from a loan shark might feel like your only option when you’re in a pinch and need cash fast. These illegal lenders have few requirements and can seem easier than going to a legit lender. But there are better alternatives out there.
Loan sharking is deemed a criminal offence in Canada if the effective rate (including fees and penalties) exceeds 60% per annum, which works out to ~47% APR. This rule does not apply to payday loans as those are regulated differently.
Loan sharks may be attractive to some borrowers because they’re fast, informal and discreet. However, there are safer options to explore.
Predatory lending is any unethical tactic a lender or loan shark uses to trick a borrower into unfair or illegal terms. Borrowers with bad credit or low income are often targeted most. In other words, people who might not be able to qualify for a loan from a bank or credit union. But even the most creditworthy customers can fall victim if they aren’t careful.
Here are some of the common ways disreputable lenders take advantage of borrowers:
Get small, zero-interest loans from these cash advance providers. You pay no interest on these cash loans, but you may pay a monthly subscription fee.
| Loan provider | Interest rate | Loan amount | Loan term | Key features | |
|---|---|---|---|---|---|
 Credit Line | No interest or fees to access credit, optional $11.99/month membership for premium services like instant funding | $30 – $150 | 30 days, extendable | Instant approval, no credit check and funding within 30 minutes with a monthly subscription | |
 Cash Advance | No interest but there’s a mandatory subscription fee starting at $2/month. | $20–$250 | Flexible | Easy application, no credit check, instant access to funds in app or via ATM | |
 Early Pay | No interest for cash advances but a $2.99 monthly membership fee applies, fee for express funding (varies based on advance) | $20 – $350 | Next pay cycle (61 days max.) | A fee applies if you want an instant transfer, No credit check, No late fees |
Some lenders of personal loans can accept bad credit and low incomes. Overall, however, personal loans are harder to get than cash advances or payday loans.
| Loan provider | Interest rate | Loan amount | Loan term | Key features | |
|---|---|---|---|---|---|
 Installment Loan | 8.00% - 46.96% | $500–$50,000 | 4 - 60 months | Loan search platform, largest lender network, instant pre-approval, accepts bad credit | |
 Installment Loan | 8.99% - 46.96% | $500–$2,500 | 3 - 6 months | Loan search platform, pre-approval in 5 minutes, instant pre-approval, accepts bad credit |
Unlike loan sharks, payday lenders are legally required to be licensed in all provinces where they operate, and they have payday loan regulations they must follow. That said, payday loans have excessively high fees and are only appropriate as an absolute last resort.
| Loan provider | Interest rate | Loan amount | Loan term | Key features | |
|---|---|---|---|---|---|
 Payday Loan | Varies by province | $100 – $1,500 | 7 - 62 days | 24/7 approval and e-Transfer, accepts bad credit | |
 Payday Loan | Varies by province | $100 – $1,500 | 5 - 40 days | Instant approval, e-Transfer in as little as 15 mins, accepts bad credit |
| 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 |
Payday loans can sometimes be useful as a last resort for emergency one-time use, but yes, they can also be predatory. These loans are extremely expensive and are typically repaid by the borrower’s next payday. When that happens, the borrower has less income left over to pay for other expenses or debts. If the borrower doesn’t have enough income left, it may force them to get another payday loan, which traps them in a cycle of debt. This can easily happen if the borrower was struggling financially to begin with – which is usually the case with payday loan users.
Also watch out for payday lenders who rush or pressure you into getting the loan.
First and foremost, predatory lending is expensive for the borrower. Legitimate lenders profit when a borrower makes their payments on time and lose money when they default. But predatory lenders often include terms that let them profit when a borrower can’t pay — such as charging high late fees or seizing valuable collateral like a car or house.
Not only does this cost borrowers much more than your standard term loan, but it can also destroy your credit — limiting your future options when you need a loan, want to buy a home or in some cases, need to get a job. Predatory lenders also often set borrowers up to get caught in a cycle of debt. This can lead to bankruptcy if you receive a court order to pay off a lender and aren’t able to.
You know how a predatory lender can hurt you, now learn what to look out for when comparing lenders. One or two warning signs doesn’t necessarily mean a lender isn’t legit, but you might want to steer clear if you notice multiple red flags.
If it seems too good to be true, it probably is. Read your contract carefully for hidden fees and keep an eye out for sentences that seem intentionally confusing. Make sure you fully understand what you’re getting into before you sign it. And keep an eye out for exception deals. If you don’t have strong credit or a regular income coming in, but a lender guarantees you a low-interest loan with favorable rates, you might be looking at a scam.
Predatory lenders often use TV ads, aggressive telemarketing techniques and even door-to-door salespeople to convince you that you need a loan. If the loan wasn’t originally your idea, chances are you’re working with a lender that doesn’t have your best interest in mind. Even so, not all lender-initiated deals are scams.
Provinces require lenders to have a licence. Read up on your province’s regulations and make sure your lender is up to snuff, especially if it charges extremely high rates and fees. Check your local department of business oversight to make sure it’s registered. If it’s not, you could be dealing with a loan shark or other predatory lender.
Some lenders might be hesitant to give you information about its loan costs until they know your credit score and income. This might be a sign that their loans are expensive, though not necessarily a sign of a predatory lender.
But when a lender doesn’t want to give you details about your loan’s cost even after you’ve provided information about your personal finances, consider looking elsewhere.
Your credit score typically comes into play when a lender decides which rates, fees and terms you’re eligible for. But most legitimate lenders don’t charge extra fees for having bad credit.
Others might charge you much higher rates than you’re eligible for with other lenders. You can avoid this by prequalifying with a few lenders to get a ballpark idea of what rates you should be getting.
If a lender doesn’t want you to read the contract carefully, that could be a sign it’s trying to hide something. In this case, stand your ground and be extra careful when you go over your contract. A legitimate lender shouldn’t pressure you for wanting to know what you’re getting into.
Never sign a document that has blank spaces where a lender could potentially go back in and add clauses that you never agreed to, like right to offset clauses. Ask your lender for another copy of the contract without the blank spaces — or look for a loan somewhere else.
Loan insurance is a legitimate product and you’ll likely get offered this especially if you’re a borrower with bad credit, but it should never be required. This is a completely optional product and the lender can’t ask you to get it in order to get approved.
| Response | Saskatchewan | Ontario | Nova Scotia | New Brunswick | Manitoba | British Columbia | Alberta |
|---|---|---|---|---|---|---|---|
| Groceries | 10% | 4.7% | 2.94% | 3.85% | 4.35% | 4.32% | 6.08% |
| Insurance (car, home, life, health, etc.) | 10% | 2.35% | 4.35% | 3.24% | 2.03% | ||
| Medical/dental emergency | 7.5% | 2.15% | 2.17% | 1.62% | 1.35% | ||
| Car repair | 5% | 5.28% | 2.17% | 3.24% | 0.68% | ||
| Emergency move or travel expenses | 5% | 2.35% | 1.62% | 0.68% | |||
| Expected travel expenses (fuel, public transit fares, etc.) | 5% | 0.98% | 2.17% | 1.62% | 0.68% | ||
| Expenses due to job loss | 5% | 1.17% | 2.17% | 1.62% | 0.68% | ||
| Gas (utility) bill | 5% | 1.96% | 3.85% | 6.52% | 0.54% | 0.68% | |
| Rent | 5% | 4.31% | 5.88% | 3.85% | 2.17% | 2.7% | 2.7% |
| Cable TV bill | 2.5% | 1.76% | 2.94% | 2.17% | 0.54% | 3.38% | |
| Car loan payment | 2.5% | 4.11% | 5.88% | 2.17% | 3.78% | 2.03% | |
| Child care expenses (daycare, school fees, clothing, etc.) | 2.5% | 0.59% | 3.85% | 2.17% | 0.54% | 1.35% | |
| Education expenses | 2.5% | 1.17% | 2.17% | 2.16% | 4.05% | ||
| Electricity bill | 2.5% | 3.33% | 2.94% | 3.85% | 2.17% | 3.24% | 2.03% |
| Home repair (broken appliance, roof damage, etc.) | 2.5% | 3.91% | 5.88% | 4.35% | 1.62% | 4.05% | |
| Internet bill | 2.5% | 2.54% | 5.88% | 3.85% | 2.17% | 1.62% | 1.35% |
| Vacation | 2.5% | 1.96% | |||||
| Water bill | 2.5% | 1.96% | 2.94% | 2.17% | 0.54% | 1.35% | |
| Phone or Mobile phone bill | 2.15% | 2.94% | 3.85% | 4.35% | 1.08% | 1.35% | |
| Entertainment | 1.96% | 2.17% | 1.08% | 1.35% | |||
| Mortgage | 1.96% | 3.78% | 3.38% | ||||
| Pet care expenses | 1.17% | 1.62% | |||||
| TV/music/media subscription | 0.78% | 0.54% | |||||
| Gifts | 0.39% | 0.54% | |||||
| Gym membership | 0.2% | 2.94% | 0.54% | 0.68% |
If you need help with your financial situation, consider getting credit counselling. There are free credit counselling services available across Canada.
If possible, talk to your creditor first. There’s a chance that there’s been a misunderstanding that can be quickly resolved. If you can’t, check with your province’s laws. Many — though not all — have laws against predatory lending and procedures that you can follow if your lender breaks those laws. You could potentially file a lawsuit against your lender.
You might also want to file a complaint with the consumer protection office in your province or territory. After you file a complaint, the office reaches out to the company to attempt to resolve the problem. It also uses complaints to identify lenders and practices that should have more regulation.
Predatory lenders and loan sharks trick borrowers into getting a loan they can’t afford. They’re particularly common with payday loans, though you can find predatory lenders of secured and unsecured personal loans, business loans, mortgages and more.
You can make sure you’re protected by knowing your province’s rules and knowing the warning signs. Also consider browsing our guide to legitimate payday loan alternatives.
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