What an ordinary loan costs
Every loan has a price and a paper trail, and the two are supposed to match. The ordinary charges are the ones that pay for the money itself and for the work of putting the loan in place. Interest is the first. The second is usually a single origination or administration fee, disclosed before you sign, that covers the lender's cost of opening the file.
Canada sets an outer limit on the price of credit. Section 347 of the Criminal Code s. 347 makes it an offence to enter into an agreement for interest at a criminal rate, which the section sets at 35% per year. That is a ceiling, not a market rate. It tells you nothing about what any particular applicant will be offered.
On a secured loan, ordinary costs also include the work of taking security: an appraisal, a title search, and registration of the charge against the property. On a mortgage, a prepayment penalty may be ordinary if you break a closed term early. Payment-related charges, such as a fee for a returned pre-authorized debit, are also common. What makes a charge ordinary is not that it is small. It is that the charge is standard for the product, disclosed in writing, and applied the same way to everyone in your situation.
Optional insurance and add-ons sold alongside the loan
This is where the cost of a loan stops being about the loan. Insurance and other add-ons are frequently offered at the same desk, in the same meeting, with the same pen. Some are genuinely useful. Most are optional, and a few are expensive versions of something you can buy elsewhere or get without paying for at all.
Creditor insurance and payment protection
Creditor insurance — also called credit protection, loan insurance, or payment protection — is designed to pay some or all of your loan balance if you die, become disabled, or in some versions lose your job. It is usually optional. Two questions decide whether it is worth the premium: whether you already hold coverage that would do the same job, and whether the policy's exclusions and waiting periods mean it would actually pay in your circumstances. Premiums are typically tied to the balance you owe rather than to your own risk profile, so the cost can differ substantially from a standalone life or disability policy of the same size.
Whether a lender can require you to buy this coverage is a regulatory question that depends on the product and the province, because lending in Canada is licensed provincially, so the regulator and the rules differ. The Financial Consumer Agency of Canada publishes consumer guidance on credit products, disclosure, and what you are entitled to be told before you sign.
Add-ons that get financed
The costliest add-ons are the ones that disappear into the principal. If a premium or a fee is added to the amount you borrow, you pay interest on it for the life of the loan. A modest monthly add-on financed over a long amortization can end up costing a multiple of its sticker price. Ask, in writing, whether each optional item is paid up front or added to the balance, and what the loan would cost without it.
Common optional items
- Creditor insurance or payment protection on the loan balance.
- Gap insurance on a vehicle loan, which covers the difference between what your auto insurer pays and what you still owe if the vehicle is written off.
- Extended warranties or service plans added to a financed vehicle or appliance.
- Credit monitoring, identity theft protection, or a membership plan attached to the account.
- Property insurance on a secured loan — required, but you can usually choose your own insurer.
Several provinces restrict how insurance may be bundled with a loan, and some require separate, clear consent. Where that applies, a signature on a combined form is not the same as your agreement to every line on it. Read each item on its own and decline the ones you do not want.
Comparing the charges: ordinary, optional, and warning sign
| Charge | Ordinary, optional, or warning sign | What to check |
|---|---|---|
| Interest | Ordinary — this is the price of borrowing | The annual rate and the total cost of borrowing; the criminal rate of interest is 35% per year |
| Origination or administration fee | Ordinary when disclosed up front | Whether it is a flat fee or a percentage, and whether it is deducted from the amount advanced |
| Appraisal, title search, registration on secured loans | Ordinary for secured lending | Whether the estimate is itemized, and whether any part of it is refundable if the deal does not close |
| Prepayment penalty | Ordinary on a closed mortgage, and it can be significant | How the penalty is calculated, and whether a shorter term or a different product would cost less overall |
| Creditor insurance or payment protection | Optional | Whether you already hold coverage, and what the policy excludes or will not pay for |
| Gap insurance and extended warranties | Optional | Whether your existing insurer or the manufacturer already covers the same loss |
| Credit monitoring or membership plans | Optional, and often duplicative | What it provides that free disclosure from the credit reporting bureaus does not |
| Discharge, statement or account fees | Ordinary if disclosed, small in isolation | Whether the charge appears in the disclosure document you receive before signing |
| A fee demanded before any funds are advanced | Warning sign | Whether the provider can say which regulator licenses it, and whether the fee appears in any written agreement |
Costs specific to secured lending
Where a loan is secured against a home, both the price and the amount available are shaped by rules. At federally regulated lenders, a home equity line of credit is generally limited to 65% of appraised property value, and total secured lending against the property is usually capped at 80%. 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 two percentage points and 5.25%, under OSFI Guideline B-20.
Canadian fixed-rate mortgages are compounded semi-annually by law. That is why a mortgage rate and a credit card rate quoted as the same number are not the same price, and why a loan cost calculator needs the compounding method as an input, not just the headline rate.
Those limits govern how much you can borrow, but they matter for cost too, because they decide which products you qualify for and how much room you have to absorb a fee or an add-on without it changing your plans. A closing cost that pushes your ratios past the ceiling can change the loan you are offered, or end the application.
Payday-style credit: a different cost structure
A payday loan is generally up to $1,500 for a term of 62 days or less, and it is priced as a flat cost of borrowing rather than an annual rate. 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 cap lower than $14 per $100, and the lower cap applies. Quebec does not license payday lending, which effectively prohibits the model there.
Because the cost is expressed per $100 rather than per year, it is easy to compare a payday loan to a credit card and draw the wrong conclusion. Converting both to an annual basis is the only way to compare across products, and it is the comparison that matters, not the sticker.
Using a loan cost calculator
A loan cost calculator answers the question you actually care about: what will this cost me in total? Enter the amount, the rate, the term, the payment frequency, and any fees, and it will show total interest and total repayment. Then run the same numbers twice, once with the optional insurance premium or fee added to the principal and once without. The difference is the real price of the add-on, expressed in dollars you will actually pay.
A calculator cannot tell you what rate you will be offered. The Bank of Canada publishes the policy interest rate, the prime rate, conventional mortgage rates and Government of Canada benchmark bond yields, but those are benchmarks, not offers, and no lender is obliged to lend at them. The lowest rates are only available to the most qualified applicants.
Warning signs
- A fee you must pay before any money is advanced.
- Terms described verbally but not shown in writing.
- Insurance or an add-on already checked on the form, or added after you declined it.
- A total cost of borrowing you cannot reconcile with the rate, the fees and the term.
- Pressure to sign immediately, or a refusal to give you a copy of the agreement to review.
- A provider that cannot say which province licenses it.
Before you sign anything, check the licence. Lending in Canada is licensed provincially, so the regulator and the rules differ from one province to the next. Complaints about federally regulated financial institutions go to the Financial Consumer Agency of Canada, while provinces license and supervise most other lenders. If a provider cannot tell you who regulates it, you have learned something useful.
When the price is tied to your credit history
Some of the difference between two offers is not a fee at all. It is risk pricing. 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, and both may hold a file on you.
None of that changes your legal options, and only a licensed insolvency trustee can administer a consumer proposal or a bankruptcy. If a lender or a debt service suggests otherwise, the claim is not consistent with how the system works. Where an add-on is being sold to you on the strength of a credit problem, the first step is to check whether the problem is being described accurately.
What to do before you sign
- Ask for the total cost of borrowing in writing, not just the interest rate.
- Ask which items are mandatory and which are optional, and get the answer in writing.
- Ask whether each optional item is paid up front or financed into the balance.
- Compare creditor insurance against any coverage you already hold.
- Run the numbers through a loan cost calculator with and without each add-on.
- Check that the lender is licensed in your province, and keep a copy of everything you sign.
How much weight to give each of these depends on your income, your other debts and your plans. For a significant decision — a mortgage, a refinance, a consolidation, or anything involving an insolvency — the right answer depends on individual circumstances and is best confirmed with a regulated professional who can review your whole file. This guide explains how the charges work. It is not financial, legal or tax advice, and it is not an offer of credit. loanmoose.ca is not a lender and does not make credit decisions.