Interest rates can essentially be considered as the ‘cost’ of borrowing money from lenders. The larger and riskier the loan, the higher the interest rate will likely be. For this reason, there are different interest rates for different types of loans. In a climate of rising interest rates, it is important to understand the typical interest rates that are charged for different types of loans across Canada. In this article, we run through some typical interest rates for different loans, and discuss the maximum interest rate in Canada that you could be charged. We also share the best course of action if you find yourself struggling to keep up with loan repayments and accumulating interest on your debts.
What is the typical interest rate of loans in Canada?
Each type of loan will have a different interest rate, depending on the risk associated with each. Secured debts typically have a lower interest rate because of the associated assets should there be a failure to make payments. Unsecured loans, on the other hand, will naturally be riskier and therefore be more costly to borrow. Below, we have listed the typical interest rates of a number of loans in Canada currently.
|Product||Typical interest rate|
|Bank of Canada overnight rate (the rate banks are charged to borrow). This is typically the lowest interest rate because mortgages are secured loans, making them relatively low risk.||Typically 3-5% for the most qualified customers, dependent on term|
|Secured loans and lines of credit||6-10%|
|Unsecured loans and lines of credit||7-12%|
|Finance company loans||21.99-31.99%, plus admin fees and charges|
|Quick cash instalment loans||6-59.99%|
|Payday loans||In Ontario, these are restricted to $15 per $100 over a two week period – this equates to 390% annually|
What is the maximum interest rate in Canada?
Also known as the criminal interest rate in Canada, the maximum interest rate in Canada may be charged at 60%. This is the maximum allowable annualized interest rate. According to the Criminal Code of Canada, any interest charged above this level is a criminal offence. An important point to note is that this is not applicable to payday loans. This legislation was changed back in 2007, meaning that instead, the authority to regulate payday loans was delegated to each Canadian province to control.
What is the maximum cost of a payday loan?
In Ontario specifically following the change in the Criminal Code of Canada in 2008, the Payday Loans Act was passed. This was brought into force in December 2009, and put into place legislation on the amount an individual taking out a payday loan could be charged. In line with the Payday Loans Act, an individual can only be charged up to $15 per $100 borrowed for a two week period. This means that the simple annual interest rate of a payday loan is an eye watering 390%. Essentially, if you borrow $100 in a two week period, you will pay $15 in fees according to Ontario law. If, however, you renew your payday loan each two weeks should you not be able to repay it immediately, over the course of a year you would pay $390 in fees for borrowing just $100. As if an interest rate of 390% were not enough, unfortunately you also incur additional fees on payday loans. While the $15 fee includes administration fees, it does not include default charges. If, therefore, you are to default on a payday loan, you are likely to be charged additional fees to make the original payday loan even more expensive than it was before. While a payday loan was originally intended as a short term loan for a small amount of funds to tide someone over until payday, this is not the case for many. If you are struggling financially, you are likely to take out a larger payday loan to stay afloat. In fact, you may visit more than one payday lender. With the maximum interest rate and charges in place, this can quickly escalate and take a long time to repay. This is before even beginning your repayment of the principal loan itself. Learn more about how payday loans work.
How to act when your interest becomes out of hand
If you are facing financial difficulty and have an unmanageable amount of debt to repay, you need to act quickly. Excessive interest can quickly accumulate and add to what feels like a never ending amount of debt. Thankfully, no matter how bad you may feel your situation is, there is always a form of debt relief to support you and get you on the pathway to a fresh financial future. At Spergel, we meet many people who find themselves in a rut with payday loans and do not know what to do next. In this situation, it is important to speak to an experienced Licensed Insolvency Trustee in order to explore a debt relief solution for you. Licensed Insolvency Trustees are the only professionals in Canada legally able to file all forms of debt relief. Ignoring your debts will not make them go away, but we can help you to find a solution to tackle your escalating interest and debt. At Spergel, we can help you to tackle the maximum interest rate in Canada through a form of debt relief, including the following:
- Debt consolidation loans – a new loan that is taken out to condense multiple other separate loans into one. It has the advantage of simplifying your monthly payments into one and often either eliminates or reduces your interest rate.
Consumer proposal – a legal debt settlement filed by a Licensed Insolvency Trustee whereby you propose an affordable amount to repay your creditors over a fixed time period of up to five years. It has a number of advantages including allowing you to keep your assets, and reducing your debt by up to 80%.
Bankruptcy – the best option for a fresh financial start, bankruptcy is the process of assigning any non-exempt assets you may have over to your Licensed Insolvency Trustee in exchange for the clearance of your unsecured debts. It also offers full protection from your creditors via a stay of proceedings.
If you have further questions on the maximum interest rate in Canada, or need support in clearing your debt and accumulating interest, book a free consultation with Spergel. Our expert Licensed Insolvency Trustees have helped over 100,000 Canadians to clear their debt and begin a fresh financial future. Reach out today – you owe it to yourself.