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Canada just dropped the criminal interest rate to 35% APR and caps payday loan fees at $14 per $100. Here’s how to secure affordable credit.
As of January 1, 2025, Canada’s criminal interest rate officially reduced to 35% annual percentage rate (APR), and payday loan costs are now capped at $14 per $100 borrowed. On the surface, these changes are meant to make borrowing more affordable. However, they could have unintended consequences. While the lower costs to borrow might reduce the financial strain for some, there’s a risk these changes could potentially leave vulnerable Canadians with fewer loan options and may push those in need toward even riskier, unregulated credit options.
Here’s what the new rules mean for borrowers and lenders, and a look at better solutions to take control of your financial situation.
Short for annual percentage rate, an APR is the amount you pay per year to borrow money. An APR includes the total interest, plus any additional fees, closing costs and required insurance. So, it more accurately reflects the cost of borrowing than interest alone.
Read the full definition of APR in the MoneySense Glossary of finance and investing terms.
In Canada, the “criminal interest rate” refers to the maximum interest rate lenders can charge on a loan before loaning practices are considered illegal. If the APR of a loan goes above this limit, it is considered “predatory” and the lender could face criminal charges for charging such excessive interest.
Lowering the criminal interest rate from 48% to 35% APR limits the amount of interest lenders can charge on a loan, making it more affordable for Canadians to borrow money. A $14 cap per $100 borrowed in payday loans means that for every $100 a borrower takes out in a payday loan, they will be charged no more than $14 in fees.
While $14 may not seem like much, it works out to about a 350% annual percentage rate. This cap also sets a national standard. Prior to this change, provinces set their own payday loan caps, with rates ranging from $14 in Newfoundland to $17 in places including Manitoba, Saskatchewan and Nova Scotia.
By lowering interest rates and setting limits on payday loan fees, the federal government aims to make borrowing more transparent, so Canadians know exactly what loans cost and they don’t get trapped in a cycle of debt.
Apply for a personal loan with a 8.99% to 24.99% APR. Plus, 100% online application and no early repayment fees.
Apply for a personal loan with a 9.99% to 46.99% APR. Plus, fast e-transfers and no hit to credit score when you apply.
Which should you choose?
The Government of Canada has made this change to help protect consumers, particularly those in financially vulnerable situations, by making loans more affordable and promoting fairer lending practices. The intent is to reduce the debt caused by high-interest loans, which come with extremely high fees and repayment terms that can quickly become debt traps that are hard to escape.
However, this change doesn’t solve the underlying issue—many Canadians turn to high-interest loans because they have low or no credit scores and cannot access credit from traditional (and cheaper) lenders.
These changes don’t tackle the larger issue of making affordable borrowing accessible and providing better financial solutions to those who need them most.
“If we really want to help vulnerable Canadians, we need to do more than just adjust interest rates,” says Bruce Sellery, Credit Canada CEO. “We need to look at the bigger picture—offering more affordable loan options, better financial support, and the tools people need to take control of their finances.”
Here’s how the new loan changes can affect both borrowers and lenders in Canada:
While these changes are intended to help borrowers, they might end up making things more difficult for Canadians in the long run. With lower rates, lenders are likely less willing to approve the number of loans they did previously, tightening eligibility requirements and making it harder for Canadians and those new to Canada to qualify. This could push borrowers toward riskier choices like pawn shops, illegal lenders, or even overseas loan companies that aren’t regulated and could leave them with more debt than they started with.
Another issue: the lower interest rates might give borrowers the wrong impression—that loans are now “affordable.” This could cause them to delay seeking financial help from trusted organizations, like Credit Canada, and rely on high-interest loans, making their situation worse over time.
For lenders, the new rules could lead to some tough decisions. One lender shared that it is already turning down more loan applications because the lower interest rates don’t leave enough room to cover the associated risks of some loan applicants. Non-prime lenders, which typically serve people with lower credit scores, may reduce the number of loans they offer altogether. This could make it harder for some Canadians to access credit when they need it most.
The changes to the criminal interest rate will impact how some people in Canada can access credit. For financially vulnerable Canadians, who often rely on payday loans or high-interest credit products, borrowing can become more difficult. On the positive side, the change means lower interest rates on certain loans, which could help reduce financial strain for many borrowers.
However, there is a downside. Fewer available credit options may drive some Canadians to riskier, unregulated lenders. It puts transparency of terms at risk, making things like high fees, hidden charges and repayment plans unclear.
These types of lenders lack consumer protections, leaving borrowers at risk of falling deeper into debt. This means that our efforts for financial literacy and planning are even more critical.
“Debt isn’t the problem; debt is a symptom,” says Sellery. “The actual problems people face are things like job loss, divorce, addictions, mental health or physical health struggles. We need a comprehensive approach that includes financial coaching, mental health support and other resources to create lasting financial stability for Canadians.”
Instead of turning to costly loans, there are proactive steps you can take to improve your finances and qualify for traditional credit options, such as:
One of the best ways to qualify for lower-cost credit is to improve your credit score. Your credit score indicates creditworthiness for lenders, meaning it influences what credit you qualify for, the loan(s) you can obtain, the interest rate you’ll pay, and possibly even where you work and live. Because of this, monitoring and understanding your credit are two of the most crucial financial habits you can build.
A good way to start is by making sure you’re paying the minimum amount or more, on time, every time for all your bills. Missed payments can hurt your score.
Reducing the balances of your credit card(s) is also crucial—aim to keep them below 30% of your credit limit to show you can manage credit responsibly.
Also, regularly check your credit report. It can help you spot any errors that may be affecting your score. By following these steps, you’ll be able to gradually improve your score and increase your chances of securing better credit options in the future.
Creating a budget is essential for managing your finances effectively—and sticking to it will prevent you from relying on credit. Track your income and expenses to find out where your money goes and identify areas where you can cut back.
Prioritize debt repayment using strategies like the debt snowball method (paying off the smallest debts first) or the avalanche method (tackling high-interest debt first). This will help you avoid costly borrowing and improve your financial well-being long term.
If you’re not sure where to start in tackling your debt or building your credit score, contact trusted organizations, like Credit Canada. Our counsellors provide free, personalized advice on budgeting, debt management and building credit. With expert guidance, you can avoid high-interest loans and create a sustainable financial plan that works for you. “Financial education plays a huge role in helping people avoid debt,” says Sellery. “It’s not just about cutting loan rates—it’s about teaching Canadians how to make smarter choices with their money, so they’re not stuck in a cycle of borrowing.”
The reduced criminal interest rates might help lower borrowing costs for some in Canada, but it could also limit access to credit, especially for those already struggling to secure loans. This can push financially vulnerable Canadians toward less regulated, riskier lenders that may lead to even more debt.
This is where financial literacy and planning come in. Understand your finances, improve your credit score and create a solid budget. These steps can help you improve your financial situation and prevent you from needing to rely on high-interest loans.
As professionally certified Credit Counsellors with Credit Canada, we can help you understand your credit and offer personalized advice on how to manage your debt.
Contact us today for a free credit-building counselling session with personalized advice tailored to your financial situation.
This is an unpaid article that contains useful and relevant information. It was written by a content partner based on its expertise and edited by MoneySense.
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Created By
Credit Canada
Created By
Credit Canada
Created By
Credit Canada
