APR Explained: How to Compare Canadian Loan Offers

You have two loan offers open in two tabs and the numbers do not line up. One quotes a rate, one quotes a weekly payment, and neither tells you which is cheaper. So what is APR in Canada, and how much weight should it carry when you are choosing?

APR is the tool built for exactly this problem. It is useful, it has real limits, and knowing both will save you money.

What is APR in Canada

APR stands for annual percentage rate. It expresses the cost of borrowing as a single yearly percentage of the amount you borrowed, so that two loans of different sizes and terms can be held side by side.

The important part is that APR is designed to be broader than the posted interest rate. Canadian cost of borrowing disclosure rules require lenders to tell you the cost in a standardized way, and the intent is that required charges connected to the loan are folded into the figure rather than hidden beside it. What is inside the number can vary, so ask any lender a direct question: what is included in this APR, and what am I charged that sits outside it.

Three different numbers, often confused

• Interest rate. The rate applied to the outstanding principal. On its own it ignores fees, so it is the least useful figure for comparison.
• APR. The annualized cost of the credit, meant to include the charges you must pay to get it. This is your comparison tool.
• Total cost of borrowing. The dollars you hand over on top of the principal, across the whole term. This is what actually leaves your account.

You want both APR and total cost in dollars. APR ranks the offers. The dollar figure tells you whether you can live with the winner.

Why APR looks strange on very short loans

Annualizing works cleanly over months. Over days it produces figures that feel absurd but are arithmetically correct.

Take the payday cost cap as an illustration, not as anyone's price. In provinces with a payday lending regime the cost of borrowing is capped at $14 per $100. Borrow $100 for 14 days at that cap and you pay 14% of the principal in a fortnight. Stretch that same proportion across a year and it annualizes to roughly 365%. The cap is written as a flat fee, not as an APR, which is why the annualized version is so much larger than the sticker.

The lesson is not that APR is misleading. It is that APR compares like with like. Comparing a 14-day product against a three-month product on APR alone tells you about the pricing model, not about which is right for your situation.

The ceiling APR has to respect

Since 1 January 2025 the federal criminal rate of interest in Canada is 35% APR. It replaced a ceiling of 60% expressed as an effective annual rate. Any loan priced above 35% APR is unlawful unless it falls inside one narrow exemption.

That exemption is section 347.1 of the Criminal Code. It treats a loan as a payday loan when the amount advanced is $1,500 or less, the term is 62 days or less, the lender is licensed in a province designated for the purpose, and the cost sits within that province's cap. Quebec and the three territories have no payday lending regime, so the 35% ceiling is the only rule that applies there. Why the 62-day boundary carries so much weight is covered in why a loan term longer than 62 days matters in Canada.

So when you see an APR quoted, the first thing it tells you is which rulebook you are in.

A method for comparing two offers

Put both offers on one page and fill in the same six lines for each. If a lender will not supply a line before you sign, treat the gap as information.

1. Amount advanced, meaning what actually lands in your account.
2. Term and number of payments.
3. Payment amount and frequency.
4. APR, all-in.
5. Total cost of borrowing in dollars.
6. Total repayable, principal plus cost.

Then check three conditional items that do not appear in APR at all: the late payment fee, the dishonoured payment fee, and whether there is a penalty for repaying early. For payday loans in provinces with a regime, the dishonoured payment charge is capped at $20 or less. Elsewhere, read the agreement.

The traps that make offers look better than they are

• Payment-size framing. A small weekly payment is not a price. Multiply it by the number of payments and subtract the principal.
• Term stretching. A longer term lowers each payment and usually raises the total. Both offers should be compared over their real terms.
• Fees quoted separately. If an administration fee is mentioned outside the APR, add it to the total cost yourself before you compare.
• Optional add-ons. Payment protection or insurance products may be presented as part of the package. Ask whether they are optional and what the loan costs without them.
• Renewal assumptions. A cheap-looking short loan you expect to extend is not cheap. The true cost of rolling over a short-term loan shows how quickly that compounds.

What APR will never tell you

APR does not know your pay cycle. A loan with a good APR and payments landing three days before each paycheque is worse for you than a slightly costlier loan timed to the day after you are paid. It also says nothing about how a lender behaves when you call to change a date.

That is why structure deserves as much attention as price. Lendeca schedules repayments against your actual pay cycle, weekly or bi-weekly, across up to 12 payments, with an APR that stays consistently below 29% and administration fees written into the agreement before you sign. Eligibility is specific: you must be 18 or older, employed and receiving a regular paycheque from a job, hold an active Canadian bank account in your own name, and not be in an active bankruptcy or consumer proposal. Benefit income does not qualify, including EI, CSST/CNESST, WSIB and other workers' compensation, ODSP and other provincial disability or social assistance. If you are on a benefit, comparing APRs is not the exercise you need right now, and the free help below is.

Before you compare any offers at all

• Ask your employer for an advance on earned wages. The APR on that is zero.
• Ask the creditor for a payment arrangement. Splitting a bill in two costs nothing.
• Ask a credit union about a small-dollar loan; member-owned lenders often price low.
• Talk to a free non-profit credit counsellor through Credit Counselling Canada, or an ACEF office in Quebec.

A short-term loan fits a defined one-off expense you can repay from income you already have coming. If the gap between your monthly income and your monthly costs is the real problem, no APR is low enough to fix it.

Common questions

Is a lower APR always the better deal?
Usually, for the same amount over the same term. Across different terms, check the total cost in dollars as well, because a longer loan at a lower rate can still cost more overall.

Does APR include fees?
It is meant to capture the required cost of the credit, not just interest. Confirm with the lender what is inside the number and what is charged separately.

Why do payday loans quote a fee instead of an APR?
Because the provincial cap is written as a dollar amount per $100 borrowed. You can annualize it yourself, and the result is far higher than the fee suggests.

What is the highest APR allowed in Canada?
35% APR, since 1 January 2025, unless the loan meets every condition of the payday exemption in section 347.1.

Should I use an online APR calculator?
It is a reasonable sanity check on a lender's figure. Use the amount actually advanced, the exact payment schedule and every required fee, or the result will flatter the offer.

Ask for the APR and the total cost in dollars, in writing, before you agree to anything. Two numbers, both offers, one page.

See how the numbers look for you →