Interest Rate Limits in Canada – What Lenders Are Legally Allowed to Charge

Section 347 of the Criminal Code of Canada sets the criminal rate of interest. Before January 1, 2025, this rate was 60% effective annual rate (EAR). After amendments, the criminal rate is now 35% annual percentage rate (APR) for most consumer loans.

Breaking Down the New 35% APR Cap

What Counts as "Interest"?

The Criminal Code defines "interest" broadly to include most fees associated with a loan. This prevents lenders from advertising "0% interest" while charging high "fees" – those fees count toward the 35% cap.

The Key Exceptions:

Business Loans Exceptions

For loans where the borrower is not a natural person (i.e., a corporation or other business entity) and the loan is for business purposes:

Pawnbroker Loans Exception

For small pawnbroker loans under $1,000 where:

• The lender carries on a pawnbroking business
• The borrower pawns tangible personal property (not a vehicle)
• The lender's only recourse on default is seizure of the property

Cap: 48% APR

Payday Loans Exception

Payday loans meeting certain criteria are exempt from the criminal rate entirely – but a new national cap applies. The total cost of borrowing for a qualifying payday loan must not exceed 14% of the amount advanced.

Example: If you borrow $100 under a payday loan, the total cost of borrowing (including all fees, interest, and charges) cannot exceed $14.

The New "Offering and Advertising" Offence

A critical change effective January 1, 2025: It is now a criminal offence to offer or advertise credit at a rate above the criminal rate. Previously, the offence only applied to actually entering into an agreement or receiving a payment.

This means:

• A lender cannot advertise "loans at 50% APR" – even if no one actually borrows
• Law enforcement can take action based on advertisements alone
• Online ads for illegal lending apps can be prosecuted without needing to prove individual loans were made

What This Means for Different Types of Lenders

Traditional Banks and Credit Unions

Major banks and credit unions operate well within the criminal rate. Their rates typically range from 7-25% APR for unsecured credit. They are not the concern.

Payday Lenders

Payday lenders operate under the specific payday loan exemption. The national 14% cost of borrowing cap is significantly lower than what some provinces previously allowed. As of January 2025, any payday loan with total cost exceeding 14% of principal is illegal.

Installment Loan Providers

Non-bank installment lenders (including some loan apps) are subject to the 35% APR cap. If you see a loan app advertising rates above 35%, it is operating illegally.

"Earned Wage Access" Apps

These apps exist in a regulatory grey zone. They do not call themselves loans. They charge "tips" or "expedited delivery fees" rather than interest. Provincial laws vary on whether these products are considered loans subject to interest rate caps.

What Grandfathering Exists?

The amendments include transitional provisions for agreements entered into before January 1, 2025:

• If a loan agreement was entered into before January 1, 2025, and the interest would not have been criminal at the time, the receipt of payments after January 1, 2025 is NOT an offence
• The new 14% payday loan cost of borrowing cap does NOT apply to agreements entered into before January 1, 2025

This means existing loans are not automatically criminalized by the new lower cap.

How to Verify a Lender is Compliant

Step 1: Ask for the APR in Writing

Legitimate lenders must provide this. If they refuse, do not borrow.

Step 2: Calculate the APR Yourself

Use the formula:

APR = (Total Cost of Borrowing ÷ Amount Received) ÷ (Loan Term in Days ÷ 365) × 100

Example: You receive $500 and pay back $550 in 30 days.

• Total cost: $50
• 50 ÷ 500 = 0.10
• 30 ÷ 365 = 0.082
• 0.10 ÷ 0.082 = 1.22
• 1.22 × 100 = 122% APR – ILLEGAL (exceeds 35% cap)

Example – Payday Loan: You receive $100 and pay back $114 in 14 days.

• Total cost: $14 (exactly 14% of principal)
• 14% of principal is the legal maximum for qualifying payday loans

Step 3: Check Provincial Licensing

Even if the APR is within the cap, the lender must be licensed in your province. Contact your provincial consumer protection agency.

What to Do If a Lender Is Charging Above the Legal Limit

1. Do not borrow – If you see an illegal rate advertised, do not proceed
2. If you already borrowed, stop paying – You are not legally obligated to repay a criminally usurious loan
3. Report to authorities:

• Your provincial consumer protection agency
• The RCMP (for criminal interest rate violations)
• The Canadian Anti-Fraud Centre