With interest rates and the cost of living way up, at least one important number is going down—the maximum interest rate on loans.
What happened: The feds are pushing down the maximum legal interest rate from 47% to 35%. And while payday loans technically fall under provincial jurisdiction and are exempt from those interest rate rules, the feds are also capping their charges at $14 for every $100 leant out—which can still add up to an over 300% interest rate on an annual basis.
- Alternative lenders say that the lower cap on interest rates is going to cut off millions of Canadians from credit, and push many to even more predatory payday loans.
Catch-up: If a 47% interest rate seems really high to you… it is. But the feds set that original cap in 1980, when the Bank of Canada had hiked interest rates to 21% in its fight against inflation. It was a tough time to be carrying a loan, wherever you got it.
Why it matters: Interest rates are up, and that makes it harder for people to get large loans from banks that are being more careful than ever about who they lend to. That’s driving more Canadians to alternative lenders, whose interest rates are a lot higher than the current ~6% banks offer for, say, a mortgage.
What’s next: Advocacy groups are calling for even lower interest rate caps, and the feds say they’ll hold consultations about whether that should happen. They’ll also look into whether payday loans should be made subject to the federal interest rate cap.
If you ask us, we’re predicting a shaky business outlook for any loan sharks out there.—AP