On January 1, 2025, the ceiling on what any lender in Canada can legally charge fell from an effective annual rate of 60% to an annual percentage rate of 35%. The change came through amendments to section 347 of the Criminal Code, and it also made it an offence to offer or advertise credit above that line, whether or not anyone ever signs.
So the maximum legal interest rate in Canada is 35% APR for most borrowing. Interest is defined broadly in the statute, which means fees, commissions, penalties and service charges count toward the number alongside the posted rate. Three carve-outs sit outside the 35% ceiling: certain commercial loans, small pawn loans, and payday loans in provinces that regulate them.
That third point is where business owners get caught. If someone quoted you a factor rate instead of an interest rate, the consumer ceiling may not cover your deal at all, and the only figure worth negotiating is your total cost in dollars. Here is what the rules say, who they protect, and how to read a business financing offer against them.
What the 35% criminal interest rate cap covers
Section 347 makes it an offence to agree to receive interest at a criminal rate, to accept payment at that rate, and now to offer or advertise credit at that rate. That last piece arrived with the 2025 amendments. Enforcement no longer needs a completed loan. An advertisement is enough.
Why the switch from EAR to APR matters
The old rule capped the effective annual rate at 60%, a compounding measure. The new rule caps the annual percentage rate at 35%, which does not compound. Because 60% EAR worked out to roughly 48% on an APR basis, the real-world drop is from about 48% to 35%. Both the number and the method of calculating it changed on the same day.
What actually counts as interest
This is the part borrowers underestimate. The definition sweeps in charges and expenses paid for the advancing of credit, whatever they are called: setup fees, administration charges, penalties, commissions, and amounts deducted from the advance before it lands in your account. A lender cannot post a 30% rate, add a 9% origination fee, and call the sticker number the whole story.
One more detail worth knowing. Agreements signed before January 1, 2025 that complied with the rules of the day remain enforceable under those older rules, so the new ceiling is not retroactive. If your paperwork predates 2025, the old ceiling is the one that governs it. Renewals and refinancings are a different question, and that is exactly when to re-read the numbers.
Which loans sit outside the cap
The Department of Finance Canada built exemptions into the Criminal Interest Rate Regulations so that commercial credit, pawnbroking and provincially regulated payday lending could carry on. The result is a tiered system rather than one flat number.
| Type of credit | Ceiling that applies | What to watch |
|---|---|---|
| Consumer borrowing, any amount | 35% APR | All fees and charges count toward the 35% |
| Commercial loan under $10,000 | 35% APR | Small business credit is not automatically exempt |
| Commercial loan of $10,000 to $500,000 | 48% APR | The common band for alternative business financing |
| Commercial loan above $500,000 | No criminal rate ceiling | Pricing is a matter of negotiation, not statute |
| Pawn loan under $1,000, no vehicle | 48% APR | Lender's only recourse is the pawned item |
| Payday loan in a regulated province | $14 per $100 borrowed | Separate provincial rules also apply |
Where the line between consumer and commercial sits
The commercial exemptions turn on the credit being extended for business purposes, typically to a corporation or partnership rather than to you personally. Signing a personal guarantee does not on its own turn a business loan into consumer credit, but the structure of the deal matters, and structure is worth a conversation with your lawyer before closing on anything unusual. Borrowing secured against your home sits on the consumer side of the line, which is why private mortgage pricing works to a different set of rules than a business advance. If you are weighing how a facility is secured, our guide to secured versus unsecured business loans covers what lenders register against.
Here is the uncomfortable part. A $75,000 advance to an incorporated business can price above what the same owner could ever be charged personally, and it can be perfectly lawful. Legal and sensible are two different tests, and only one of them is your problem to solve.
How to work out what financing really costs you
Factor rates are the reason so many owners misjudge their cost. A factor rate is a multiplier, not an annual rate, so it says nothing about how long you have to repay. Two offers with the same factor rate can differ enormously in real cost. The same trap shows up in invoice factoring, where a discount fee quoted per 30 days says nothing about how slowly your customers actually pay.
The 4-point cost check
- Total dollars repaid. Not the rate. The full amount that leaves your account before the facility closes.
- Time to repay. The same dollar cost over six months is roughly twice as expensive as over twelve.
- Every charge included. Origination, administration, broker commission, early payout penalty, anything deducted at funding.
- Payment frequency. Daily and weekly debits pull cash out before your receivables arrive, which is a cost your income statement will not show you.
Run the arithmetic on a typical structure. A $50,000 advance at a 1.25 factor means $62,500 repaid, so $12,500 in cost. That looks like 25%. But if the repayment runs over about ten months in daily debits, your average outstanding balance is only about half the original advance, so the annualized cost lands nearer 50% to 60% than 25%. Same offer. Very different number.
This is also why comparing a merchant cash advance to a term loan on rate alone is meaningless, and why consolidating business debt sometimes saves less than the headline suggests once the fees are back in the total. Honestly, if a lender will not put your total dollar cost and payout date in writing before you sign, you already have the answer you need about that lender.
What to do when the numbers do not add up
Start with a written cost summary. Ask for the total repayment amount, the number of payments, the payment frequency, every fee by name, and the cost of paying out early. Any lender operating properly can produce that in an afternoon.
Who to contact if something looks wrong
The Financial Consumer Agency of Canada handles complaints about federally regulated financial institutions and publishes plain-language material on the cost of borrowing. Provincial consumer protection offices oversee licensing for payday lenders, mortgage brokerages and many finance companies. Section 347 itself is criminal law, so a genuine suspicion of a criminal rate belongs with a lawyer and, where appropriate, the police, rather than with a complaints line.
Then compare offers side by side on dollars, not adjectives. If you want to see how a file gets assessed before you apply anywhere, our application process lays out what a full-file review involves.
Solid Capital is a Canadian alternative lender working with business owners and homeowners the banks decline or under-serve, and our underwriting reads the whole file, bank statements, revenue history and business context, instead of stopping at a credit score. If your business is generating revenue and you can show it, there is a real conversation to be had. Talk to a Solid Capital advisor, no impact to your credit to apply.
The cap gives you a legal floor to stand on. It does not do your arithmetic for you. Ask for the total, in dollars, in writing. That one question tells you almost everything.
Frequently Asked Questions
What is the maximum legal interest rate in Canada in 2026?
The criminal rate of interest is an annual percentage rate above 35%. It has applied since January 1, 2025, when the previous ceiling of a 60% effective annual rate was replaced. Fees, commissions and penalties count toward the 35%, not just the posted rate.
Does the 35% cap apply to business loans?
Not always. Commercial loans between $10,000 and $500,000 are exempt provided the cost stays at or below 48% APR, and commercial loans above $500,000 have no criminal rate ceiling. Commercial loans under $10,000 remain subject to the 35% cap.
Are merchant cash advances covered by the criminal interest rate?
It depends on how the deal is structured and how large it is. Many advances are written as a purchase of future receivables rather than a loan, and most business advances also fall inside the commercial exemption bands. Judge them on total dollar cost rather than assuming a cap protects you.
Do fees count toward the interest rate cap?
Yes. Section 347 defines interest broadly enough to capture charges and expenses paid for the advancing of credit, including setup fees, administration charges, commissions and penalties. A low posted rate with heavy fees can still breach the ceiling.
What happened to the old 60% interest rate rule?
It was replaced on January 1, 2025. The old rule capped the effective annual rate at 60%, which equated to roughly 48% APR. Agreements entered into before that date that complied with the old rule remain enforceable under it.
How do I convert a factor rate into an annual cost?
Work out the total dollars repaid, subtract the amount advanced to get your cost, then divide by the amount advanced and adjust for the repayment period. Because you repay continuously, the annualized cost is typically close to double the simple percentage.
