What Is APR and How Is It Calculated?
APR (annual percentage rate) is the total yearly cost of a loan — interest plus mandatory fees — expressed as a single percentage. Since January 1, 2025, federal law caps most consumer lending in Canada at 35% APR.
What does APR include?
APR bundles the interest rate together with the mandatory fees a lender charges — origination or administration fees, for example — and expresses the whole package as one annual percentage. That makes it the fairest single number for comparing loans: two loans with the same interest rate can have very different APRs if one charges fees and the other doesn't.
How is APR calculated in practice?
Here is a real, published example from a Canadian lender (Spring Financial, verified July 10, 2026): a $5,000 loan over 48 months at 9.99% APR costs $29.17 per week, and the total interest paid over the life of the loan is $1,066.48. The APR translates directly into that total cost — which is why the number to ask about is always the total cost of borrowing, not the monthly payment. A lower payment over a longer term can cost far more in total.
What is the maximum APR in Canada?
Since January 1, 2025, the federal criminal interest rate caps most consumer lending at 35% APR (Criminal Code s. 347). Payday loans are the exception: they are regulated separately, with a maximum cost of borrowing of $14 per $100 borrowed — which, on a typical two-week loan, works out to an APR of roughly 365%. That gap is why a personal loan is almost always cheaper than a payday loan for the same amount.
APR vs. interest rate — what's the difference?
The interest rate covers only the interest charge. APR adds mandatory fees on top. If a lender advertises a low interest rate but charges an origination fee, the APR will be higher than the advertised rate — and the APR is the number that reflects what you actually pay. In lender ads, Canadian rules generally require the APR to be disclosed; that's the figure to compare.
How should you use APR when comparing loans?
Compare APR ranges across lenders for the same amount and term, then look at where in the range you're likely to land — advertised minimums typically require strong credit. Our province comparison pages show representative APR ranges from licensed lenders, verified against each lender's own published rates and dated.
Frequently asked questions
Is a lower APR always the better loan?
Usually, for the same amount and term. But a longer term at a lower APR can still cost more in total interest than a shorter term at a slightly higher APR — always compare the total cost of borrowing.
Why is the APR I'm offered higher than the advertised rate?
Advertised minimums typically require strong credit. Lenders price by credit profile, income and term, so most applicants land somewhere inside the advertised range, not at the bottom.