How to Run a Proper Loan Comparison Using APR and Total Cost of Credit

A proper loan comparison means ranking offers by APR and total cost of credit, not by the advertised rate alone. Here is how to do it step by step.

By Promissory.ca Editorial Team Reviewed against official Canadian sources Last updated: 2026-09-16

Two loan offers can carry the same advertised rate and still cost very different amounts. A loan comparison only works when you compare APR and the total cost of credit across the same principal, term and payment schedule.

What APR and total cost of credit actually measure

APR: the annual cost of borrowing, with specified fees folded in

The APR expresses the cost of credit as a yearly rate instead of a monthly payment. In Canada, federal Cost of Borrowing rules require most consumer credit agreements to disclose the cost of borrowing as an annual rate, so the disclosed figure reflects both the interest charge and specified fees over a defined term. That design lets offers with different fee structures be placed on a common footing: a loan with a low interest rate and a large upfront fee can show a higher APR than a loan with a slightly higher rate and no fees.

Two cautions matter. First, APR assumes you keep the loan for the full term and make every payment on schedule, so it says nothing about the cost of repaying early. Second, APR is not calculated identically for every product — mortgage disclosure differs from instalment-loan disclosure, and some products present the cost of borrowing in another form. Compare APRs only when they were calculated on the same basis, or step back to the dollar total.

Total cost of credit: every dollar the loan takes from you

Total cost of credit is the bottom line: interest charges plus every mandatory fee plus any optional product you actually accept, added up over the life of the loan. It can be quoted as a dollar total or worked out as total payments minus the amount advanced. Because it is expressed in dollars, it can compare genuinely different products — a short-term advance against a multi-year instalment loan, or an unsecured personal loan against a secured facility — provided you use the same principal and the same repayment period.

How to run a loan comparison in six steps

1. Put both offers on identical terms. Ask for a quote on the same principal, term and payment frequency. Weekly payments measured against monthly payments is not a comparison.
2. Locate the APR on both disclosure documents. If a lender will not state an APR in writing, treat that as a reason to slow down.
3. Add every mandatory fee. Origination, administration, documentation, registration, appraisal, broker and renewal fees are all part of the cost, and fees paid upfront hurt more because you lose that money immediately.
4. Price the repayment pattern you actually intend. If you expect to repay early, ask how a prepayment penalty is calculated and whether it is flat, interest-based or a percentage of the balance.
5. Separate optional products. Credit insurance and payment-protection plans raise the cost. Rank the offers with those products included and excluded, then decide.
6. Check the lender and the legal ceiling. Confirm the lender is licensed in your province and that the cost of credit sits within the legal limit for that product.

The comparison table that exposes the real difference

Fill this in before you sign anything. Offer A and Offer B are the two loans you are weighing.

Fees and features that quietly change the ranking

Ask about each of these before you accept a quote:

• Origination or administration fees charged at funding.
• Broker or intermediary fees paid to a third party.
• Documentation, registration or discharge fees.
• Credit insurance and payment-protection plans, and whether they are optional.
• Renewal or rollover fees on short-term products.
• Prepayment, early-payout or breakage charges.
• Fees for changing payment dates or frequency.
• Charges for a dishonoured pre-authorised payment.
• Compounding frequency and the day interest starts to accrue.
• Whether the rate is fixed or variable, and what a variable rate is tied to.

Where Canadian law sets a ceiling — and where it does not

Canada has no single maximum interest rate covering every kind of credit. There is a criminal ceiling, provincial consumer protection rules and product-specific caps — and those boundaries decide whether an offer is even worth comparing.

The criminal rate of interest is 35% APR, reduced from 48%. Payday lending is handled separately: in provinces that operate a payday lending regime, the cost of a payday loan is capped at $14 per $100 borrowed, the fee for a dishonoured payment is capped at $20, and the maximum payday loan is $1,500. Quebec does not permit payday lending, and the maximum rate of credit there is 35% per year.

The FCAC's illustration of a 14-day $500 payday loan at $14 per $100 — a $70 charge — works out to roughly 365% APR. That figure shows why APR exists as a comparison tool: a small dollar charge over a very short period can be far more expensive per year than an instalment loan whose interest is spread across many months.

Mortgages follow another rulebook. Federally regulated lenders must qualify borrowers under OSFI Guideline B-20 at the greater of the contract rate plus two percentage points or 5.25% — a qualification test, not the rate you pay. Minimum down payments are 5% on the portion up to $500,000, 10% on the portion from $500,000 to $1,500,000, and 20% above $1,500,000; anything under 20% down requires mortgage default insurance, and the maximum amortization for an insured mortgage is 25 years. Under the Interest Act, if a mortgage or agreement for sale provides for interest but does not state an annual rate, no interest above 5% per annum is chargeable.

Credit files and privacy are part of the comparison

How an application affects your credit file is practical information for any loan comparison. Equifax Canada and TransUnion Canada are the two national credit bureaus; a hard inquiry may affect a credit score, while a soft inquiry does not. Ask which type a lender performs before you submit a full application. PIPEDA also governs how organisations handle personal information in Canada, including what they must tell you when they collect it.

Questions to ask before you choose

• What is the APR, and what assumptions were used to calculate it?
• What is the total cost of credit in dollars if I make every payment on schedule?
• What is the total if I repay the loan early?
• Which fees are mandatory and which are optional?
• What happens if I miss a payment or my pre-authorised debit is returned?

This article is general information about how credit costs are disclosed and calculated in Canada. It is not legal, tax or financial advice, and Promissory.ca is not a lender.