What happens first when a payment is missed
A missed payment starts as an arrear — an amount past due. Your loan agreement defines what the lender may charge and do. Many agreements allow a late fee and continued interest accrual. The amount and timing are not set by a single national rule for all loans, so the contract and the lender's disclosed terms matter. Read the sections on default, late charges, acceleration, and collection costs. If you do not have a copy, ask the lender for the agreement and a current statement showing the arrears, fees, and interest to date.
The federal Criminal Code sets a criminal rate of interest at 35% per year (s. 347). That is a criminal ceiling, not a typical rate, and it does not mean every loan is priced near it. For licensed payday lending, different rules apply. A payday loan is generally up to $1,500 for a term of 62 days or less. 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 lower cap, and the lower cap applies. Quebec does not license payday lending, which effectively prohibits the model there. The Financial Consumer Agency of Canada explains the wider rules on debt and borrowing, including high-cost credit. If a payday loan is already in arrears, rollovers or new high-cost borrowing can increase the total owed rather than resolve the missed payment.
The path from arrears to collections
After the due date passes, the lender's internal process usually begins. You may receive reminders by phone, email, text, or mail. The account may be flagged as delinquent. If the arrears continue, the lender may move the file to its internal collections department or to an external collection agency. At that stage, the people contacting you may not be the original lender. Collection activity can include repeated contact, demand letters, and, for secured loans, steps toward enforcing the security.
Credit reporting can happen alongside collection activity. Canada has two national credit reporting bureaus: Equifax Canada and TransUnion Canada. Lenders and collectors may report missed payments to one or both. The Financial Consumer Agency of Canada publishes guidance on credit reports and scores, including how to request your reports and dispute errors. The exact date a late payment appears, and how long it remains, depends on the lender and the type of account. 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.
| Stage | What may happen | Where a borrower can still act |
|---|---|---|
| Payment due date passes | Late fee, additional interest, reminder contact, account marked delinquent | Contact the lender, review the agreement, ask about a payment arrangement or hardship options |
| Arrears continue | Internal collections, demand for payment, possible external collection agency | Request a written account statement, negotiate a realistic schedule, keep records of all contact |
| Credit reporting | Missed payment or delinquency may appear with Equifax Canada or TransUnion Canada | Check both credit reports, dispute inaccurate information, focus on stopping further missed payments |
| Secured loan default | Enforcement of security, power of sale or repossession depending on the loan and province | Speak to the lender early, ask about hardship or refinancing options, get regulated advice before missing a secured payment |
| Legal collection | Civil claim, judgment, possible wage garnishment or asset seizure if a court orders it | Respond to court documents, seek legal advice, consider insolvency options through a licensed insolvency trustee |
| Insolvency filing | Consumer proposal or bankruptcy administered by a licensed insolvency trustee | Get a full assessment of debts, assets, income, and alternatives before filing |
How missed payments affect credit and future borrowing
A missed payment can lower a credit score and signal risk to future lenders. The size of the impact is not the same for everyone; it depends on your existing credit history, how many payments are missed, how recent they are, and how the account is reported. If the missed payment leads to collections or a judgment, the effect can be more serious. The Financial Consumer Agency of Canada notes that credit reports are used by lenders, landlords, and others, so errors are worth checking.
Loan applications with bad credit are assessed differently from applications with a clean history. Some lenders focus on higher-risk borrowers, but that does not mean approval is automatic or that the terms will resemble the advertised rates for well-qualified borrowers. The lowest rates are only available to the most qualified applicants. If you need to borrow money with bad credit, compare the total cost of borrowing, not just the payment. Bad credit loans with high fees, short amortization periods, or repeated renewals can make arrears worse. Check whether the lender is licensed in your province, because lending in Canada is licensed provincially, so the regulator and the rules differ. For federally regulated financial institutions, consumer complaints go to the Financial Consumer Agency of Canada; provinces license and supervise most other lenders.
Where you can still act before and after collections
There are decision points throughout the process. Acting earlier usually creates more options, but a borrower can still take concrete steps after a file reaches collections. The following checks are practical starting points:
- Read the loan agreement for the default, late charge, acceleration, and collection cost clauses. Ask for the specific sections if you cannot find them.
- Obtain a current statement showing the principal, interest, fees, and arrears. Compare it with your own records and your bank statements.
- Contact the lender before the next due date if possible. Ask what payment arrangements, hardship programs, or deferral options exist. Put the request in writing.
- If a collection agency contacts you, ask for written confirmation of the debt, the original creditor, and the amount claimed. Keep a log of dates, names, and what was said.
- Check your credit reports from both Equifax Canada and TransUnion Canada. Dispute information that is wrong or incomplete.
- Many borrowers prioritize essential spending and secured debts, because losing a home or vehicle has consequences beyond a credit score. Ignoring court documents can make the situation harder to resolve.
- For unmanageable debt, speak to a non-profit credit counselling service and, for formal insolvency, a licensed insolvency trustee. Only a licensed insolvency trustee can administer a consumer proposal or bankruptcy.
- If the lender is a federally regulated financial institution and a complaint is unresolved, the Financial Consumer Agency of Canada explains the complaint process. For other lenders, the provincial regulator is the starting point.
These steps do not determine a particular outcome. The lender's response depends on its policies, your payment history, the loan type, and the law that applies. The right answer for a mortgage in default is not the same as the right answer for an unsecured personal loan or a payday loan. For significant decisions, regulated professional advice is appropriate.
Secured debts, insolvency, and complaints
Secured loans carry a different risk. If you miss payments on a secured loan, the lender may eventually enforce its security. That can mean repossession of a vehicle or enforcement against a home, depending on the province and the agreement. For context, 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%. 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% (OSFI Guideline B-20). Canadian fixed-rate mortgages are compounded semi-annually by law. These are underwriting rules and benchmarks, not offers, and no lender is obliged to lend at a particular rate.
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. They can help you understand the rate environment, but they do not determine what any individual lender will offer. A missed payment can also affect your ability to refinance or renew, because a lender will look at the arrears and the credit report.
If debts are beyond a payment arrangement, formal insolvency may be an option. 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. Those timelines matter, but they are not the only consideration; assets, income, and the type of debt all affect the analysis. Only a licensed insolvency trustee can administer a consumer proposal or bankruptcy.
What to check before you borrow again
After a missed payment or a period of bad credit, rebuilding takes time. Before you submit new applications, gather information so you can compare accurately:
- Order your credit reports from Equifax Canada and TransUnion Canada and check for errors.
- List all debts with balances, minimum payments, interest rates, and whether each is secured or unsecured.
- Check whether the lender is licensed in your province and which regulator handles complaints.
- Ask for the total cost of borrowing in writing, including fees and penalties, not just the payment amount.
- Ask how missed payments are reported and what hardship options exist before you sign.
- Compare credit counselling, a debt management plan, a consumer proposal, and bankruptcy only with a qualified professional, because each has different consequences.
Loanmoose.ca is not a lender and does not make credit decisions. It is a matching and comparison service. Any loan application goes to a lender or licensed brokerage, and that lender decides whether to approve, decline, or offer different terms. Rates and terms depend on the lender's assessment.