Whenever you borrow money in Canada, whether through a credit card, a car loan or a line of credit, you will see an annual percentage rate, or APR. It is the single most useful number for comparing the cost of credit, yet many borrowers misunderstand it. Here is a plain-language guide.

What APR means

APR is the yearly cost of borrowing expressed as a percentage. For many loans in Canada, lenders must disclose an APR that includes the interest rate plus certain mandatory fees, so you can compare offers on an equal footing. A loan with a low advertised rate but high fees can have a higher APR than a loan with a slightly higher rate and no fees.

APR vs. interest rate

• Interest rate: the percentage charged on the money you borrow.
• APR: the interest rate plus applicable borrowing costs, spread over a year.

If there are no fees, the APR and the interest rate are the same.

How credit card APR works

Most Canadian credit cards charge an APR of around 20% to 23% on purchases, and often more on cash advances. Interest is calculated daily on your balance. If you pay your full statement balance by the due date, you generally pay no interest on new purchases thanks to the grace period, which is at least 21 days in Canada. Cash advances usually start charging interest immediately.

Example

A $3,000 balance at 20.99% APR costs roughly $52 in interest in one month. Paying only the minimum can stretch repayment over years. If you carry a balance, a lower-rate card, a balance transfer or a consolidation loan may save money. Read our Money guides for strategies.

The legal limit on interest in Canada

Since January 1, 2025, the criminal interest rate in Canada has been set at 35% APR, down from a previous limit that was much higher. Lenders cannot legally charge more than this on most consumer loans. Payday loans follow separate provincial rules that cap the cost per $100 borrowed; even capped, they translate into a very high effective annual rate and should be a last resort.

How to compare offers

1. Compare the APR, not just the advertised rate.
2. Check whether the rate is fixed or variable.
3. Look at the total cost of borrowing over the full term, which lenders must disclose.
4. Ask about prepayment penalties if you might pay the loan off early.
5. Check your credit score; a better score usually means a lower APR.

Useful tools

The Financial Consumer Agency of Canada (FCAC) offers free credit card comparison tools and budgeting calculators. You can also estimate costs with an online loan calculator before you apply.

Understanding APR helps you borrow only when it makes sense and pay as little interest as possible.