Ontario man has spent 5 years trying to pay off a $4,500 loan but has barely made a dent. Here’s what’s holding him back

Given that he’s made 60 payments over the last half-decade — $196 per month — O’Halloran expected his loan to be nearly paid off. Instead, he’s still owing $3,697, and learned he actually took out a line of credit and not an instalment loan.

“At $4,500, if you do the math, it comes out to close to $10,000 for a $4,500 loan,” O’Halloran told CTV News, adding, “I know there is no possible way to pay this thing, as the interest is going to keep adding on.”

He noted that he did not receive the paperwork when he first signed the loan, as the company alleged their photocopier was broken.

While O’Halloran did tell the news outlet he refinanced his loan once, he was shocked he still owed so much. Of the $196 he pays monthly, $147 goes towards interest and only $49 towards the principal amount. On top of the loan, O’Halloran is still paying medical bills and other necessary expenses — he now regrets borrowing the money.

CTV News contacted the lender, but received no response.

Criminal interest rate cap lowered last year

Stories similar to O’Halloran’s in part prompted the federal government to institute new legislation for interest rate caps on January 1, 2025, with an aim to protect financially vulnerable Canadians from predatory lending practices.

As a result, it is now illegal for lenders to offer high-interest loans with an annual percentage rate (APR) of 35%: APR is a combination of interest rates and fees. Payday loans were also lowered to a cost of $14 per $100 borrowed (an annual interest rate of 365%) as well.

Prior to the changes, the legal cap on interest rates was at 48% APR.

The changes were first presented back in Budget 2023, updating the “Criminal Interest Rate Regulations.” Subsequent additions were put forward in Budget 2024 to “prohibit offering of credit at the criminal rate of interest.”

The changes to the criminal limit on interest rates were not retroactive, so consumers like O’Halloran weren’t eligible for lower rates on their old loans.

While the changes can’t help Canadians who got a high-interest loan prior to the beginning of 2025, consumers in 2026 will access regulated lenders at the amended rates. The question is: will it help?

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Experts raise issue with the cap

On paper, the change seems welcome. As many as 8 million Canadians or more don’t meet the strict credit requirements (a score of 720 or more) to borrow from major financial institutions. So, they turn to alternative, sub-prime lenders and payday loans.

Shouldn’t lowering the interest rate for millions of Canadians be a prudent decision? Not if it stops regulated lenders from being able to offer loans to those who are financially vulnerable.

That’s the argument made in A Rise in Illegal Lending and Criminal Activity, a paper co-authored by the Canadian Lending Association (CLA) and Ontario Association of Chiefs of Police (OACP). The organizations suggest that 4.7 million Canadians will no longer have access to fair alternative lenders — instead they are pushed to borrow from payday lenders or illegal loan sharks.

Regulated lenders set high interest rates to account for the risks of a sub-prime borrower failing to make a payment. A lower interest rate means they may not turn a profit when lending to Canadians who are at a high risk of defaulting. So, they exit the market.

Thus, illegal lenders and payday loan sharks fill the void.