Start with the cost of borrowing, not the monthly payment
The monthly payment is the number that fits your budget; the cost of borrowing is the number that tells you what the money costs. It is the total of interest plus the fees and charges the agreement makes part of the borrowing. The Financial Consumer Agency of Canada explains how the cost of borrowing is calculated and what information a lender must give you before you sign. Find that clause first.
loanmoose.ca is a matching and comparison service. It is not a lender and does not make credit decisions.
Three questions settle most of it. Is the rate fixed or variable — and if it is variable, what benchmark does it follow and how often can it change? Is interest calculated on the balance before or after each payment? And which fees are one-time, and which can come back every year?
The Bank of Canada publishes the policy interest rate, the prime rate, conventional mortgage rates and Government of Canada benchmark bond yields. Those are benchmarks, not offers, and no lender is obliged to lend at them. A variable-rate clause that names one of them is telling you what your rate will track, not what you will be charged.
There is also a criminal-law ceiling. The Criminal Code s. 347 (Department of Justice Canada) sets the criminal rate of interest at 35% per year. That figure is a legal threshold rather than a market rate, and the section's definition of interest is broader than the headline number. The lowest rates are only available to the most qualified applicants.
Payday-style credit sits in a different box. 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. Some provinces set a payday cap lower than $14 per $100, and the lower cap applies. Quebec does not license payday lending, which effectively prohibits the model there. A payday loan is generally up to $1,500 for a term of 62 days or less. If the product you are reading fits that shape, compare it per $100 advanced rather than as an annual rate.
Prepayment: is it an open loan or a closed loan?
This clause can cost more than a year of interest. An open loan generally lets you repay part or all of the balance at any time without a prepayment charge. A closed loan generally restricts early repayment or attaches a cost to it. Both structures are common on a personal loan or personal line of credit, and the label is not always printed in large type — look for the words open, closed, prepayment, payout and interest adjustment.
Where a charge applies, the agreement has to give you the formula. It is often expressed as a number of months of interest, or as an interest rate differential that compares your contract rate with a current rate. You do not need to memorise it; you need to find it and read the worked example, because a partial prepayment and a full payout can be treated very differently.
Two more things to check. Does prepaying re-amortise the loan — that is, does your payment drop, does your term shorten, or does nothing change at all? And is there a fee for producing a payout statement, which is the document you need in order to leave?
Mortgages carry one structural feature worth knowing: Canadian fixed-rate mortgages are compounded semi-annually by law. That affects how a quoted rate turns into the rate you actually pay, which is why a mortgage rate and a personal loan rate quoted at the same figure do not mean the same thing.
Default: the clauses that let the lender demand everything at once
Default is not only a missed payment. A typical agreement lists several events: missing an instalment, breaching a covenant such as keeping insurance in force, giving information that turns out to be inaccurate, having assets seized by another creditor, becoming insolvent, or defaulting on a different account with the same lender. That last one is a cross-default clause, and it means trouble on one loan can pull another into default.
Read the remedy as carefully as the trigger. Many agreements contain an acceleration clause that lets the lender declare the entire balance due immediately, with accrued interest and enforcement costs on top. Some include a cure period — a set window to fix the problem before the lender can act. Some do not. Find out which one you have.
If the loan is secured, default also opens the door to the lender realising on the collateral, under rules that differ across the country. Lending in Canada is licensed provincially, so the regulator and the rules differ by province.
Where the security is a home, the agreement's lending limits matter too. At federally regulated lenders, a home equity line of credit is generally limited to 65% of appraised property value, with total secured lending usually capped at 80%. Those limits sit alongside the lender's debt-service math: federally regulated mortgage lenders generally work to a total debt service ratio ceiling of about 44%, and qualify an uninsured mortgage at the greater of the contract rate plus 2 percentage points and 5.25% under OSFI Guideline B-20.
Default also has a credit-reporting tail. A consumer proposal stays on a credit report for 3 years after completion, or 6 years from filing, whichever comes first. A first bankruptcy stays on a credit report for 6 years after discharge. Canada has two national credit reporting bureaus — Equifax Canada and TransUnion Canada — so it is worth checking both. Only a licensed insolvency trustee can administer a consumer proposal or a bankruptcy; no lender and no debt consultant can do it for you.
Insurance and loans: two contracts, not one
Insurance and loans are often sold together, but they are separate agreements. Creditor insurance — life, disability or job-loss cover tied to the loan balance — is generally optional unless the contract states otherwise, and it costs more when the premium is added to the balance and interest is charged on it as well. Ask four questions: is it optional, is the premium financed, what are the exclusions, and can I cancel later and receive a refund of unearned premium?
Separately, a secured loan almost always requires you to keep property insurance on the collateral, with the lender named on the policy. That is a covenant, and letting coverage lapse can be an event of default. Check whether the agreement lets the lender force-place insurance and add the cost to your balance if your own coverage lapses.
Do not confuse either product with a government guarantee, and do not treat an insurance pitch as a condition of approval unless it is written in the contract. If someone tells you coverage is mandatory, ask to see the clause.
Assignment: who holds your loan next year
Nearly every agreement contains an assignment clause letting the lender sell or transfer the loan, and your payments, to another institution without asking you first. That is normal. What matters is what the clause protects: you should be told where to send payments, the transfer should not quietly change your rate or term, and you should keep your own record of the balance and payment history.
Read the neighbouring clauses too. An amendment clause that lets the lender change terms unilaterally, a governing-law clause that names a province, and a notice clause that defines how the lender contacts you all shape how much control you keep later in the relationship.
A checklist before you sign
- Find the cost of borrowing and compare it with the advertised rate. Anything unexplained in between is a fee to ask about.
- Confirm fixed or variable, and if variable, the benchmark and how often it can change.
- Add up what you will have paid by the end of the schedule, not just the payment.
- Identify whether the loan is open or closed, and copy the prepayment formula word for word into your own notes.
- List every default trigger, and mark the ones you could trip by accident.
- Check the cure period, and whether an acceleration clause applies.
- Separate required insurance from optional insurance, and ask whether premiums are financed.
- Read the assignment, amendment and notice clauses as a set, because they work together.
- Ask which regulator supervises the lender — lending is licensed provincially, and the complaints route follows the licence.
- Keep a signed copy and every statement. The version you can produce is the version that counts.
Clause map
| Clause | What it controls | What to check |
|---|---|---|
| Cost of borrowing | The total price of the money | Fixed or variable; which fees are included; which recur |
| Payment schedule | How the balance falls and when it ends | Interest-only or blended; balloon at the end; payment frequency |
| Prepayment | Whether you can pay early, and at what cost | Open loan or closed; the formula; partial versus full payout |
| Default | The events that let the lender demand the whole balance | Cure period; acceleration; cross-default |
| Security | What the lender can seize, and lending limits | What is pledged; property insurance covenant; loan-to-value ceilings |
| Insurance | Which coverage is required and which is optional | Financed premiums; exclusions; cancellation and refund |
| Assignment | Who collects your payments later | Notice of transfer; changes to rate or term |
| Amendments and notices | How the terms and the relationship can change | Unilateral change rights; governing province; how notice is given |
Where to complain, and what happens next
If the lender is federally regulated, consumer complaints go to the Financial Consumer Agency of Canada; provinces license and supervise most other lenders. That distinction matters twice over: it decides who can review a complaint, and it decides which set of disclosure and collection rules applies to your contract.
None of this is financial, legal or tax advice, and loanmoose.ca is not a lender — it does not make loans, set rates or make credit decisions. Reading the agreement is how you find out what you actually owe. The right answer for your situation depends on your circumstances, and for a significant decision it is worth getting regulated professional advice before you sign.