New Canadian Rules for High-Interest Loans: What to Know

On January 1, 2025, the federal government lowered Canada’s criminal interest rate to 35% annual percentage rate (APR) and capped payday loan fees at $14 per $100 borrowed. While these measures are designed to make short-term credit less expensive and more transparent, they carry potential unintended effects. For some borrowers, costs will drop and loans will be clearer. For others—especially financially vulnerable Canadians—the changes could reduce the number of available lending options and push people toward unregulated or informal lenders who may charge even more or use predatory practices.

Below is a clear summary of what the new rules mean for borrowers and lenders, along with practical steps Canadians can take to protect and improve their financial situation.

What is the “criminal interest rate”?

In Canada, the criminal interest rate is the legal ceiling above which charging interest becomes a criminal offence. When a loan’s APR exceeds that threshold, the lender may be subject to criminal sanctions for predatory lending.

Reducing the criminal interest rate from 48% to 35% APR restricts how much interest and fees lenders can charge. The $14-per-$100 limit on payday loans means lenders cannot charge more than $14 in fees for every $100 borrowed on those short-term loans.

Although $14 on $100 seems modest as a flat fee, when annualized it roughly translates to a 350% APR for a one-week or two-week loan. The federal cap also establishes a national baseline—before this change, provinces set their own payday loan limits, ranging from $14 in Newfoundland to up to $17 in some provinces.

By lowering caps and clarifying cost limits, the government aims to reduce hidden charges and limit the debt traps that can follow from high-fee, short-term credit products.

Why the change?

The government’s stated goal is consumer protection: to reduce the financial harm caused by extremely high interest rates and opaque fee structures that can trap borrowers in long-term debt. By capping the maximum interest and limiting payday loan fees, the government intends to make credit costs more predictable and reduce the risk of harmful borrowing cycles.

That said, the reform does not address the root causes that drive people to expensive lenders—chiefly limited access to affordable credit for those with low or no credit history, unstable income, or other financial barriers. Without alternative low-cost lending options and supportive services, simply lowering caps may not be enough to help the most vulnerable.

“If we really want to help vulnerable Canadians, we need to do more than just adjust interest rates,” says Bruce Sellery, CEO of Credit Canada. “We need the bigger picture—more affordable loan products, proactive financial supports, and the tools people need to manage their money.”

The unintended consequences of lower-interest payday loans

While the reform aims to protect consumers, it can have ripple effects for borrowers and lenders that deserve attention.

Borrowers

Lower permitted rates may lead some lenders—especially those serving higher-risk customers—to tighten lending standards or reduce the number of loans they offer. That can make it harder for people with limited credit histories, newcomers to Canada or those with lower incomes to obtain short-term credit. When regulated lenders step back, borrowers may turn to riskier alternatives such as pawn loans, payday loans from unregulated vendors, illegal lenders, or offshore lenders with little consumer protection.

There is also a perception risk: reduced advertised costs might lead some borrowers to assume loans are affordable for longer-term needs, when in reality short-term fees can still be costly if rolled over repeatedly. This could discourage individuals from seeking free financial counselling and support that would better address their money challenges.

Lenders

Lenders that traditionally provided higher-fee non-prime products may find the new limits make certain borrowers uneconomic to serve. Some lenders have already reported rejecting more applications because the margin left after the reduced fees does not cover the credit risk. The result may be fewer credit options for people who most need them and a contraction of the market for non-prime lending.

How do the new loan changes affect you?

The new criminal interest rate and payday-fee cap will affect Canadians differently depending on their financial profile. For many, lower allowable costs can reduce borrowing expenses and make repayment easier. For others who depend on non-prime lenders or quick access to small-dollar credit, options may become scarcer, potentially pushing them toward unregulated lenders without consumer protections.

That risk underlines the importance of greater financial literacy, planning and access to trusted advice. When credit choices narrow, informed budgeting, credit repair and reliable support services become even more essential to avoid harmful borrowing patterns.

“Debt is often a symptom of larger problems—job loss, family breakdown, mental or physical health issues,” Sellery explains. “Tackling those root causes alongside offering financial coaching and better credit choices is the best way to achieve lasting stability.”

What borrowers can do

Rather than relying on expensive short-term loans, consider proactive steps that build financial resilience and improve access to lower-cost credit.

Improve your credit score

A higher credit score opens doors to cheaper borrowing. Pay bills on time, reduce outstanding credit card balances (aim to keep utilization under about 30%), and check your credit report regularly to correct any errors. Small, consistent improvements in payment behaviour and balances can raise your score and expand access to mainstream lenders and better rates.

Focus on budgeting and debt repayment

Create a realistic monthly budget to track income, fixed expenses and variable spending. Identifying discretionary areas to trim can free up funds for debt repayment. Use structured repayment strategies—such as the debt snowball (paying smallest balances first) or avalanche method (tackling highest-interest balances first)—to reduce overall interest and accelerate becoming debt-free.

Seek free support

If you’re unsure where to begin, contact reputable credit counselling organizations like Credit Canada for free, confidential guidance. Certified counsellors can help you build a budget, create a debt-repayment plan and explore options for rebuilding credit. Financial education and advice can be more effective and less costly than relying on repeated short-term borrowing.

Changes to criminal loan rates for 2025

Lower criminal interest rates and a national payday-fee cap may reduce borrowing costs for some Canadians, but they can also limit access to credit for those with fewer options. That trade-off highlights the need for parallel measures: improved access to affordable credit products, stronger financial counselling, and targeted supports for people facing job loss, illness or other drivers of financial instability.

Improving your own financial position—by budgeting, lowering debt, and repairing credit—remains one of the most effective responses to changes in the lending landscape. Professional credit counsellors can provide tailored advice and help you create a realistic plan to regain control of your finances.

Contact Credit Canada for a free, personalized counselling session to review your options and build a credit-improvement plan tailored to your situation.

Read more about loans in Canada:

• Car loan interest rates: What’s the best Canadians can get?
• Secured loans vs. unsecured personal loans: Which should Canadians get?
• Personal loan versus line of credit: Which should you choose?
• How to buy a car in Canada and get the best loan rate