Private loans in Canada: lenders, rate limits and family loans

How Canada splits lending regulation

Canadian credit regulation is shared. Ottawa regulates federally chartered banks and sets the criminal rate of interest, while provinces regulate credit unions, consumer protection, payday lending and most alternative lenders. The result is a patchwork varying between Ontario, Quebec, British Columbia and other provinces.

For borrowers, the practical question is always who the lender is and which licence it holds. A bank answers to the Financial Consumer Agency of Canada; a credit union or high-cost lender answers to a provincial regulator with its own complaint process and cost rules.

Federal rules: the criminal interest rate

Section 347 of the Criminal Code makes it an offence to charge interest above the criminal rate. Since 1 January 2025 that rate is 35 percent annual percentage rate, replacing the previous 60 percent effective annual rate, and covers fees and charges as well.

Exemptions exist. Payday loans in provinces with qualifying regimes follow a separate federal cost limit of 14 dollars per 100 dollars borrowed, and some large commercial loans face a different ceiling. Consumer instalment loans and lines of credit fall squarely under the 35 percent limit.

Provincial high-cost credit licences

Several provinces require lenders charging high rates to hold a specific licence. Ontario, British Columbia, Alberta and Manitoba have high-cost credit regimes imposing disclosure, cooling-off periods and restrictions on rollovers. Lenders must display the licence number on contracts and websites.

After the federal cap fell to 35 percent, some lenders exited the near-prime and subprime market. Police and consumer advocates warned that unlicensed online lenders and loan sharks were trying to fill the gap, often through social media and messaging apps.

Credit unions and caisses populaires

Credit unions hold a large share of Canadian retail lending, especially in British Columbia, the Prairies and Atlantic Canada. In Quebec, the Desjardins caisses form one of the largest cooperative groups in the world. Members own the institution and elect its board.

Credit unions tend to offer flexible personal loans, small emergency loans and financial counselling for members. Some run payday alternative products with modest fees. Deposits are insured by provincial guarantee corporations, and lending follows provincial rules rather than federal banking law.

Alternative lenders and peer-to-peer platforms

Online instalment lenders serve borrowers with fair or weak credit scores through Equifax and TransUnion data. Their rates often sit near the legal maximum, and many sell optional creditor insurance that substantially increases the overall cost if accepted without comparison.

Peer-to-peer consumer lending exists on a small scale, with platforms matching accredited or retail investors and borrowers under provincial securities exemptions. Business-focused crowdlending also operates. Volumes remain modest compared with the United Kingdom or United States, and availability depends on the province.

What borrowing really costs

A prime borrower may obtain a bank or credit union personal loan in the high single digits, while alternative lenders frequently quote 25 to 35 percent APR. Payday loans remain the most expensive regulated option, costing 14 dollars per 100 borrowed over a short term.

The Financial Consumer Agency of Canada found that many payday users were unaware of cheaper options such as overdraft protection, credit union loans or lines of credit. Comparing APR and total repayment is the simplest way to avoid paying several times more than necessary.

Family loans and the law

Loans between relatives need no licence and are private contracts under provincial law. A promissory note signed by both parties, stating amount, interest and repayment, strengthens the lender's position if the borrower separates, goes bankrupt or dies before repayment.

Mortgage lenders treat family money carefully. Funds used for a down payment usually require a signed gift letter confirming they need not be repaid, because borrowed down payments are restricted under insured mortgage rules. Misrepresenting a loan as a gift can amount to mortgage fraud.

Tax treatment of loans between relatives

Canada has no gift tax, but the Canada Revenue Agency applies attribution rules. If a spouse or minor child invests money lent at low or no interest, the resulting income may be taxed in the lender's hands unless the loan carries the CRA prescribed rate.

Interest received on a family loan is taxable income for the lender and must be paid by 30 January each year for prescribed-rate loans to remain effective. Loans to adult children for personal use usually raise no attribution issue, but documentation remains advisable.

Matching borrowers and options

Borrowers with good scores and stable employment should start with their bank or credit union. Newcomers with thin credit files often succeed with credit unions offering newcomer programs. Self-employed applicants benefit from bringing two years of notices of assessment from the CRA.

Those with past defaults can compare credit union small loans and secured credit before considering alternative lenders. Anyone with unmanageable debts should contact a non-profit credit counselling agency or a licensed insolvency trustee rather than borrowing again at high cost.

Comparison of Canadian borrowing channels

Steps to borrow privately in Canada

1. Pull your Equifax and TransUnion reports free online and dispute errors.
2. Calculate a payment that fits your budget, including housing and existing debt.
3. Check the lender's provincial licence or the institution's federal registration.
4. Compare APR, total repayment and optional insurance across at least three offers.
5. Use any provincial cooling-off period if a better offer appears.
6. For family loans, sign a promissory note and keep transfer records.
7. Report suspected illegal lenders to the provincial consumer office and police.

Red flags for Canadian borrowers

• A lender requesting an upfront insurance, processing or first-payment fee by e-Transfer, gift card or crypto before funding; licensed Canadian lenders never require this, and the Canadian Anti-Fraud Centre lists it as a common scam.
• Rates above 35 percent APR on instalment loans.
• No provincial licence number on a high-cost credit website.
• Down payment loans disguised as gifts to qualify for a mortgage.
• Payday loan rollovers stacking fees every pay period.

Frequently asked questions about Canadian private loans

These answers reflect federal and provincial rules in general terms. Licensing regimes and cost limits differ by province and change over time, so confirm details with your provincial consumer protection office, the FCAC or a credit counsellor before signing any contract.

Does the 35 percent cap apply to private loans between individuals?

Yes. The criminal rate applies to anyone who enters an agreement to receive interest above it, including private individuals. A friend or relative may lend at any rate below the limit, and the interest is taxable income for the lender.

Are credit unions open to everyone in their province?

Most credit unions accept any resident who buys a membership share, although some still serve particular communities or employers. Membership does not guarantee credit approval, but it provides access to counselling and products designed for members facing temporary difficulties.

What can be done about an illegal lender?

Stop paying further fees, keep all messages and contracts, and report the lender to the provincial consumer protection office and local police. Charges above the criminal rate may be unenforceable, and a lawyer or legal clinic can advise on recovering overpayments.

Is peer-to-peer lending regulated in Canada?

Platforms connecting investors and borrowers fall under provincial securities law, often through exemptions supervised by the securities commissions. When lending to consumers, they must also comply with provincial consumer protection rules and the federal criminal interest rate.

By Nabil Frik · Updated 13 October 2026