What Is the Criminal Rate of Interest? Section 347 Explained

Section 347 of the Criminal Code s. 347 sets the criminal rate of interest at 35% per year, and it does something more specific than the headline suggests: it aggregates interest together with certain fees and charges connected to the credit, annualizes them using a method defined in the section, and makes it an offence to enter into — or receive payment under — an agreement that crosses that ceiling. Payday loans are the one category Parliament carved out. Where a province operates a licensed payday lending regime, the federal Payday Lending Regulations, SOR/2024-114 cap the cost of borrowing at $14 per $100 advanced, and a lower provincial cap applies where one exists.

What section 347 actually covers

Section 347 is criminal law, not a licensing rule. It does not tell a lender what it may charge in the ordinary course, and it does not create a rate that a borrower is entitled to demand. It marks an outer boundary: above the criminal rate, the agreement itself becomes a legal problem for the person receiving the interest.

The section applies to "credit," a term the Code defines broadly enough to reach past a plain loan. Advances of money and arrangements where goods or services are supplied on a deferred-payment basis both fall inside it. That matters, because a high-cost arrangement can be dressed up as something other than a loan and still be measured against the same ceiling.

• It looks at what the borrower pays in connection with the credit, not at the lender's funding cost or profit margin.
• It binds anyone receiving interest at a criminal rate, not only banks or federally regulated institutions.
• Both halves of the transaction are addressed: entering into the agreement, and receiving payment under it.
• The effective annual rate is the test, not the nominal rate printed on the contract.

How the calculation works

The number that matters is the effective annual rate produced by the method set out in the section. That method has three moving parts.

1. Build the aggregate. Interest is not limited to the stated rate. Certain fees, charges, commissions, penalties and similar amounts paid in connection with the credit are swept into the definition, as the section's own wording sets out.
2. Place each amount in time. Every charge is mapped to the date it is actually paid by the borrower, not to the date the loan starts.
3. Annualize and compare. Those payments are converted into a single effective annual rate, which is then tested against the 35% ceiling.

Timing is where the arithmetic bites. A charge deducted at the start of a loan lifts the effective annual rate more than the identical charge paid at the end, because the borrower has the use of less money against the same repayment obligation. Short terms amplify everything: the same fee spread across a few weeks annualizes to a completely different figure than it would across a few years.

Two consequences follow for anyone comparing personal loan interest rates. First, a product can look modest on its quoted rate and still produce a high annualized figure once upfront charges are folded in. Second, because the benchmark is always a yearly one, the shorter the term, the more punishing the arithmetic becomes.

The payday lending exception

Parliament dealt with payday loans separately through an exemption in section 347.1. The criminal rate does not capture a payday loan made in a province that has its own licensed payday lending regime, provided the loan fits the federal definition — generally an advance of up to $1,500 for a term of 62 days or less. What replaces the 35% ceiling is a price cap: the Payday Lending Regulations, SOR/2024-114 limit the cost of borrowing to $14 per $100 advanced, and where a province sets a lower cap, the lower figure governs.

The logic is worth understanding, because it explains why the carve-out exists at all. A payday loan is small and short. A lender's fixed costs — underwriting, disbursement, collection — are roughly the same whether the advance is large or small, so on a small, short advance those costs are heavy relative to the amount borrowed. Apply an annualized 35% ceiling to that situation and the product stops being viable, which pushes borrowers toward unlicensed lenders who ignore the rules entirely. Parliament's answer was to set the annualized test aside for this one product and cap the price directly, per $100, with provinces free to go lower.

Two features of the exception are easy to miss. It is territorial: Quebec does not license payday lending, so the exemption is unavailable there and the model is effectively prohibited in the province. And it is conditional on the loan meeting the definition — a payday-style loan that falls outside the amount or term limits does not get the exemption, and is measured against the criminal rate instead.

Situation	Which rule governs	What it means in practice
Instalment loan or line of credit from a licensed lender	Criminal Code s. 347 — 35% per year on the aggregate	All included charges must stay under the ceiling once annualized. Mainstream consumer pricing is built well below it.
Payday loan in a province with a licensed regime	Payday Lending Regulations — $14 per $100 advanced, or a lower provincial cap	The criminal rate is not the test. The price is capped per $100 rather than per year, and the annualized cost is far above 35%.
Payday-style loan in Quebec	No provincial regime, so the federal exemption does not apply	The model is effectively prohibited in the province.
Loan outside the payday definition (above $1,500, or longer than 62 days)	Criminal Code s. 347	The per-$100 cap does not apply. The annualized cost has to stay under the criminal rate.
Mortgage or home equity line of credit	Section 347 applies, but other rules do the practical work — federal stress-test and loan-to-value limits	The criminal rate is not what shapes mortgage pricing. Collateral, amortization and debt-service limits do.

What the criminal rate is not

It is not a benchmark or a target. No mainstream lender sets pricing by starting at 35% and working down. Any product priced close to the ceiling deserves to be treated as a warning sign rather than a reasonable option, and the blunt truth is that credit at that level of cost is very unlikely to improve anyone's finances.

It is also not a statement about what you personally will be offered. Pricing depends on your credit history, income stability, how much you borrow, the term, whether the loan is secured, and the lender's own cost of funds. Advertised rates are typically best-case rates reserved for the most qualified applicants; the rate you actually receive is set after underwriting.

And it is not the only rule in the field. Federally regulated mortgage lenders generally work to a total debt service ratio ceiling of about 44% and apply a qualifying stress-test rate above the contract rate under Guideline B-20. At federally regulated lenders, home equity lines of credit are generally limited to 65% of appraised property value, with total secured lending usually capped at 80%. None of that comes from section 347 — it is a different set of rules aimed at a different risk.

Checking a cash loan before you sign

The criminal rate tells you where the hard floor of legality sits. It does not tell you whether a particular loan is a good idea. These steps do more of that work.

1. Ask for the cost of borrowing in writing, including the annualized figure — not just the rate on the poster.
2. Confirm that every fee you were told about is listed: origination or administration charges, insurance products, brokerage or referral fees.
3. Compare total repayment across the full term, not the monthly payment. A longer term lowers the payment and raises the total.
4. Check that the lender is licensed to lend in your province before you hand over documents.
5. Ask what happens on a missed payment and what it costs to pay the loan off early.

If the cost of credit looks wrong

Licensed lenders in Canada are generally required to disclose the cost of borrowing in writing before you sign, so start there: the disclosure document is the record you can point to. If a figure does not add up, raise it with the lender first. Federally regulated financial institutions' consumer complaints are handled by the Financial Consumer Agency of Canada, while most other lenders are licensed and supervised by the provinces, each of which has a consumer protection office.

If a loan appears to carry a charge above the criminal rate, treat it as serious. Keep every document, and get regulated professional advice rather than trying to resolve it informally — this is the kind of decision where a lawyer or the appropriate regulator is the right person to involve.

When payday-style debt starts compounding

The exemption is a pricing framework, not a safety net. Payday credit is expensive by design, and the standard failure mode is renewal: each rollover adds cost without reducing the underlying balance. If repayment has become impossible, only a licensed insolvency trustee can administer a consumer proposal or a bankruptcy, and trustees are regulated by the Office of the Superintendent of Bankruptcy Canada. The credit-report consequences last. A consumer proposal stays on a credit report for three years after completion, or six years from filing, whichever comes first, and a first bankruptcy stays on a credit report for six years after discharge.

loanloon.ca is a matching and comparison service, not a lender. It does not make loans, set rates or make credit decisions, and nothing here is financial, legal or tax advice — individual circumstances vary, and significant borrowing decisions deserve regulated professional input. The lowest advertised rates are only available to the most qualified applicants, so the rate offered to you depends on your own credit profile and the lender's own underwriting.

• Payday Loan Cost Cap in Canada: How the $14 Rule Works
• Payday Loan Alternatives in Canada: Cheaper Routes First
• Consumer Protection for Borrowers in Canada: Your Rights
• Filing a Lender Complaint: Ombudsman to Regulator in Canada

• Criminal Code s. 347 — criminal rate of interest — Criminal Code s. 347
• Payday Lending Regulations, SOR/2024-114 — Payday Lending Regulations, SOR/2024-114