Private loans and licensed deposit-takers: what actually differs
A private loan comes from an individual or a private company, not from a deposit-taking institution. The money is the lender's own capital rather than depositors' funds, and the arrangement is negotiated between the two of you instead of being drawn from a published rate sheet. The practical result is that price, security and paperwork can vary widely between lenders and between borrowers.
Lending in Canada is licensed provincially, so the regulator and the rules differ depending on where you live and who is lending. The Financial Consumer Agency of Canada directory of provincial and territorial regulators identifies which body supervises a lender in your province. Where the lender is federally regulated, the Financial Consumer Agency of Canada is the consumer protection body. Where it is not, provincial licensing rules and the provincial regulator apply.
One limit applies nationwide. The criminal rate of interest in section 347 of the Criminal Code, published by the Department of Justice Canada, is 35% per year. Charging an effective annual rate above that is a criminal offence. That ceiling sits far above mainstream pricing, so it does not describe what any particular private loan will cost. It marks the outer legal boundary of the cost of credit.
Short-term payday-style credit has its own regime. Where a province operates a licensed payday lending regime, the federal Payday Lending Regulations cap the cost of borrowing at $14 per $100 advanced. Some provinces set a lower cap, 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, so it is not a substitute for a private mortgage or a longer-term private loan.
What security a private lender takes
Security is the lender's protection if you stop paying, and it is the single biggest influence on whether private loans are offered to you and on what terms. Private loan lenders in Canada most often take a mortgage or a charge against real property: a first mortgage, a second mortgage behind an existing one, or a charge registered against a home or other real estate. The amount advanced against a property depends on its appraised value, what other debt is already registered against it, and the lender's own loan-to-value criteria.
Where real property is not available, a private lender may look at other security. That can include a lien on a vehicle, an assignment of a contract or a receivable, or a personal guarantee from a co-borrower. Unsecured private loans exist, but they carry more risk for the lender, and that risk shows up in the price and in how tightly the lender defines who qualifies.
Federally regulated lenders work inside a different set of constraints. A home equity line of credit there is generally limited to 65% of appraised property value, with total secured lending against the same property usually capped at 80%. Federally regulated mortgage lenders generally work to a total debt service ratio ceiling of about 44%, and they qualify an uninsured mortgage at the greater of the contract rate plus 2 percentage points and 5.25%, under OSFI Guideline B-20. Canadian fixed-rate mortgages are compounded semi-annually by law. Borrowers who fall outside those limits, whether because of income documentation, debt ratios, credit history or the type of property, are the borrowers private lending tends to serve.
Comparing the routes side by side
| Point of comparison | Federally regulated deposit-taker | Private lender | Licensed payday lender |
|---|---|---|---|
| Where the money comes from | Deposits and wholesale funding | The lender's own capital or private investors | The lender's own capital |
| Who supervises it | Federal regulators, with the Financial Consumer Agency of Canada handling consumer complaints | Provincial licensing and supervision, with the provincial regulator handling complaints | The provincial payday lending regime, where one exists |
| How the price is set | Published rate sheets tied to market benchmarks | Negotiated case by case, based on security and assessed risk | Set by the provincial regime, under the federal cap |
| Usual security | Often unsecured for small personal credit; mortgages and other secured products are registered against property | Commonly a mortgage or charge on real property; sometimes a vehicle lien or a personal guarantee | Generally unsecured |
| Ceiling on the cost of credit | The Criminal Code criminal rate of interest of 35% per year applies | The same 35% ceiling applies | $14 per $100 advanced under the federal Payday Lending Regulations, or a lower provincial cap |
| Typical term | Set by the product | Set by your agreement with the lender | Generally 62 days or less |
What disclosure you should expect
Before you sign, ask for the whole cost in writing: the amount advanced, the interest rate and how it is calculated, every fee, the repayment schedule, the prepayment rules, and what happens if you are late or you default. In Canada the general expectation is a written credit agreement that discloses the cost of borrowing, but the precise content required depends on the province, the type of credit and the type of lender. That means the document in front of you matters more than any general description of it. If a lender will not put the numbers in writing, that is your answer.
Disclosure also comes with a complaints route. Consumer complaints about federally regulated financial institutions go to the Financial Consumer Agency of Canada, and the Financial Consumer Agency of Canada complaints page sets out how to file and escalate one. Provinces license and supervise most other lenders, so a complaint about a private lender generally goes to the provincial regulator that licensed it. Keep every document: the application, the disclosure statement, the signed agreement and your payment record.
Questions to ask before you sign
- Who is the lender, and which regulator licenses it?
- What is the total cost of borrowing as a single figure, not just the interest rate?
- What security am I giving, and exactly what does the lender get if I default?
- Is the rate fixed or variable, and how is it calculated?
- What are the fees for late payment, prepayment, renewal or discharge?
- Does the lender report my payments to Equifax Canada or TransUnion Canada? Ask rather than assume.
- Who do I complain to if something goes wrong, and what is the escalation path?
- What happens if I need to sell the property or refinance before the term ends?
What decides whether you qualify and what you pay
There is no single private loan rate in Canada to quote in the abstract. What you are offered depends on the security available, your income and how easy it is to document, your existing debt payments, your credit history, the property's appraised value and the lender's own criteria. Two lenders can review the same file and reach different conclusions, which is why comparison matters more in private lending than in a market with published rate sheets. The lowest rates are only available to the most qualified applicants.
Credit history is one input among several. Canada has two national credit reporting bureaus, Equifax Canada and TransUnion Canada. 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. Only a licensed insolvency trustee can administer a consumer proposal or bankruptcy. If you are weighing insolvency against taking a private loan to cover the same debt, that comparison belongs with a licensed insolvency trustee or another regulated professional, not with a lender who stands to gain from your decision.
Market benchmarks are a useful reference, not an offer. The Bank of Canada publishes the policy interest rate, the prime rate, conventional mortgage rates and Government of Canada benchmark bond yields. These are benchmarks, not offers, and no lender is obliged to lend at them. A private lender's price is set by its own assessment of your file, so a benchmark tells you about the direction of the market rather than about your own quote.
Where loanmoose.ca fits
Loanmoose.ca is a Canadian loan matching and comparison service, and it is not a lender. It does not make loans, set rates or make credit decisions, and it cannot approve or decline an application. What it does is help you see the shape of the private loans market and connect with lenders whose criteria may fit your situation, so that you can compare written offers instead of accepting the first one. Because the right answer depends on your circumstances, treat any figure you see as illustrative until a lender puts it in a signed disclosure document.