What the Criminal Rate of Interest Actually Covers — and How Section 347 Is Calculated

The criminal rate of interest in Canada is 35% per year. That figure comes from section 347 of the Criminal Code, and it is the outer legal limit on the cost of credit for essentially every loan, line of credit and mortgage in the country. The number is easy to remember. The part that decides real cases is what the section counts as "interest" and how it turns a loan's cost into an annual figure — because a rate that looks modest on a page can still cross the line.

What section 347 actually covers

Section 347 is a criminal provision, not a consumer protection rule. It makes it an offence to enter into an agreement or arrangement to receive interest at a criminal rate, and to receive a payment at that rate. Because it sits in the Criminal Code rather than in a provincial statute, it applies the same way in every province and territory, and it applies to any person or business extending credit — not only to banks and other financial institutions.

Three things follow from that:

• The product label is irrelevant. Whether an advance is called a personal loan, a cash loan, an instalment loan or a line of credit, the question is whether the total cost of the credit exceeds the criminal rate.
• The contract does not save it. A borrower cannot validly agree to a criminal rate, and a lender cannot cure one with disclosure or a signed acknowledgment.
• It is not a cap on bad deals. Well below 35%, there is a wide range of perfectly legal pricing — some reasonable, some expensive. The criminal rate is a floor on legality, not a benchmark for fairness.

How the criminal rate is calculated

Section 347 does not simply read the nominal interest rate off the contract. The section defines interest broadly and sets out a method that aggregates interest and certain charges, then expresses the result as an effective annual rate on the credit actually advanced. In practice, the calculation answers one question: what does this credit cost, as a yearly rate, once everything the Code treats as interest is included?

1. Identify the credit advanced. Start with the amount actually made available to the borrower, not the total of payments over the life of the loan.
2. Add up the cost of that credit. That means interest plus the charges the Code folds into the definition — amounts payable for the use of the credit, including various fees and expenses imposed in connection with it.
3. Annualise the total. The cost is converted to an effective annual rate on the credit advanced, so a two-week advance and a five-year loan are measured on the same scale.
4. Compare to 35% per year. Above that effective annual rate, the agreement is in criminal territory.

Step three is why the criminal rate matters so much in short-term lending. A charge that looks small as a flat fee becomes a very large annual figure when it is concentrated into a term measured in weeks. Front-loaded cost plus a short term equals a high effective annual rate. That is arithmetic, not a judgment about any particular lender.

It is also why the section's definition of interest is deliberately wide. If the ceiling only caught the number printed next to "interest rate," a lender could move the cost into a fee and escape it entirely. Aggregating interest and certain charges closes that door, and it is the reason the calculation, rather than the headline rate, is what actually decides whether a loan is compliant.

The payday exception

Payday loans are the one product built around the fact that a very short advance cannot be priced under a 35% annual ceiling without collapsing. Rather than leave the product entirely to the criminal rate, the Criminal Code provides an exemption where a province operates a licensed payday lending regime. Where that regime exists, the federal Payday Lending Regulations (SOR/2024-114) cap the cost of borrowing at $14 per $100 advanced. Some provinces set a lower cap, and where they do, the lower figure applies.

The mechanics matter more than the headline number:

• It is a provincial decision first. The exemption depends on a province licensing and supervising payday lending. No provincial regime, no exemption — the criminal rate governs.
• Quebec is the clearest example. Quebec does not license payday lending, which effectively prohibits the model there.
• The cap is a ceiling on cost of borrowing, not a rate. $14 per $100 advanced is the federal maximum charge on a payday advance, and a province may require less.
• The product is small and short by definition. Payday loans are generally up to $1,500 for a term of 62 days or less.

Two honest cautions. First, the exemption is not a recommendation. Even at a capped cost, a payday advance is among the most expensive regulated credit available in Canada, and rolling one over repeatedly compounds the cost quickly. Second, the exception makes the product legal up to a limit — it does not make the borrowing cheap.

Where the ceiling sits for personal loans and cash loans

For most people comparing personal loan interest rates or looking for a cash loan, the criminal rate never comes up. A 35% effective annual rate sits far above what mainstream lending costs, and the reason is straightforward: the rate on a loan reflects what the lender expects to lose. Unsecured lending with no collateral carries more risk than secured lending, a thin or damaged credit file carries more risk than a strong one, and both push pricing upward.

What you should take from the 35% figure is the direction it points. Being offered a rate anywhere near the ceiling is not a sign of a competitive market — it is a sign that the lender has placed you at the very top of its risk range, and that other options are worth checking before you sign.

What the criminal rate does not do

It is worth being precise about the limits of the provision.

• It does not make a legal rate fair. A loan can sit comfortably under 35% and still be a poor decision for your circumstances.
• It does not replace provincial rules. Provinces license and supervise most non-bank lenders and set their own conduct and disclosure requirements, while the Financial Consumer Agency of Canada handles complaints about federally regulated financial institutions.
• It does not settle the civil side. Whether a particular agreement can be enforced, and on what terms, is a separate legal question from whether a rate is criminal. Those disputes turn on the facts, and if you are in one, advice from a lawyer licensed in your province is the appropriate next step.

How to check an offer with section 347 in mind

1. Read the disclosure document, not the advertisement. Advertised rates are often the best-case rate for the strongest applicants.
2. Add up every mandatory charge across the life of the loan, not just the monthly payment. The total is what gets annualised.
3. Ask the lender to state the cost of borrowing as an annual rate in writing. A nominal rate and an effective annual rate can look very different on a short-term advance.
4. Compare at least two or three sources rather than accepting the first offer, and note that a hard credit check may be part of applying.
5. If the number is close to the ceiling, pause. Consider whether a smaller amount, a longer savings runway, a secured product or a conversation with a regulated professional fits your situation better.

If you think a loan crosses the line

Keep every document: the application, the disclosure statement, the signed agreement, the payment schedule and your bank records. Then work out who supervises the lender. Complaints about federally regulated financial institutions go to the Financial Consumer Agency of Canada; most other lenders are licensed and supervised by the provinces, each of which has a consumer protection office. A regulator can act on conduct issues within its mandate, but it will not negotiate your loan for you.

Because the criminal rate is a criminal provision, a live dispute over whether a rate exceeds it is a legal matter, not a customer service matter. Decisions about how to proceed depend on your individual circumstances, and for anything significant, regulated professional advice — legal or insolvency-related — is the appropriate route rather than a general guide like this one.

loanwolf.ca is a Canadian loan matching and comparison service. It is not a lender and does not make loans, set rates or make credit decisions; it connects borrowers with lenders and lending partners who do. The lowest advertised rates are only available to the most qualified applicants, and the rate you are offered will depend on your credit history, income, debts and the lender's own criteria.