What is the Maximum Amount of Interest I Can Be Charged in Ontario?

maximum-interest-rate

Here is what I found in a couple of minutes searching the internet:

  • The Bank of Canada overnight rate (the rate banks are charged to borrow) is 0.5%
  • Mortgage rates are currently around 2% for the “best” qualified customers.
  • Secured personal loans and lines of credit will cost about 6%.
  • Unsecured loans and personal lines of credit will cost from 7% to 12% at a bank.
  • Credit cards charge interest in a range of 10% to 29.99%
  • Overdraft charges at most major banks run 21%.
  • Finance company loans range from 21.99% to 31.99% plus admin fees and charges.
  • Quick cash instalment loans advertise 6% to 35.9%
  • Payday loan companies in Ontario are restricted to $21 for every $100 over a two week period. If you are curious, that works out to $546% annually.

So, based on that, I guess the maximum interest rate you may be charged is 546% - wrong.  If you default on a payday loan they may charge you additional admin fees that push the annualized interest rate even higher!

How is this possible?  Section 347 of the Criminal Code of Canada sets the maximum allowable annualized interest that may be charged at 60% - interest charged above that level is considered usury and is a criminal offence – except for payday loans.  In 2007 Section 347.1 was added to the Criminal Code that exempted payday loans specific from Section 347.  Instead authority to regulate payday loans was assigned to the provinces.

In Ontario the Payday Loan Act was passed in 2008 and brought into force on December 15, 2009.  The Act limited the amount an individual may be charged to $21 per $100 borrowed, inclusive of admin fees, but excluding default charges.

A payday loan is defined as a short term loan for a small sum of money in exchange for a post-dated cheque, pre-authorized debit or future payment of a similar nature.   At the time the changes were implemented in 2009, the government thought the average loan was for about $300 and repaid in two weeks or less.

payday loan interest rates

Based on an analysis of 6,000 of our own clients from 2013-14, the average client owed more than $2,700 on 3.5 outstanding payday loans.  Using the maximum allowable charges (assuming no defaults) the interest charges for two weeks would run $567.  That’s before any repayment of the actual loans.  If the loans were to remain outstanding a full year the interest charges would total $14,742.  Oh, and they’d still owe the $2,700 they borrowed.

payday loan interest rates

If you find yourself in this situation I suggest you take another look at the list set out above and start looking for a “better” way to borrow.  By better, I mean less expensive.

If you are like most of the people we see, payday loans are the final straw that breaks your back – by the time you turn to payday loans no other lender will help you.  In that case it's time to talk to someone about your finances – your debts won’t go away by themselves and you can’t afford to keep paying all of this interest.

payday loan interest too high