When you need to borrow, it pays to be careful. Not everyone can qualify for a loan from one of the big banks in Canada and sometimes need to look at alternatives that might consider their application.
Finding an online lender you can trust isn’t that difficult if you take the right steps to ensure they are the real deal. Taking the necessary precautions can help to avoid a lot of stress that could result from a loan scam.
There are online loan scams in Ontario, BC, Alberta and all across Canada to beware of where a fraudulent lender promises to loan you money if you send a payment up front. But this is just one trick they use. We’ve outlined many of the most common ones below that will enable you to keep an eye out for questionable issues.
There are many other signs to be on the lookout for when trying to find a legitimate lender, and the following serves as a guideline to help determine whether they might be someone that you would want to do business with. The increase in loan fraud in recent years is something to be on the lookout for if thinking of borrowing unsecured loans online.
Payment Upfront
This is a sure sign that things might not be what they seem. A lender that expects any form of payment (including prepaid debit cards or gift cards) is one to avoid and a big red flag. Any reputable lender would not require payment to process a loan request. Always read the terms of a loan agreement before signing, which is required to be provided to you before you sign.
Guaranteed Approval
Anything that sounds too good to be true often is, and guaranteed approval is one of them. Some lenders will use this type of language since they know that those with bad credit might be looking for options like this. But this can also be something to watch for since it isn’t possible for a lender to make such claims with every application and stay in business. This type of offer is also usually tied to high interest rate loans. Other phrases to watch for can include ‘no bank documents’ or ‘no credit check’. See more on the latter below.
Nothing to Address
If considering an online loan lender (different from a marketplace like GoodCheddar) that is to fund your request, it’s best to look at more than just reviews, but also check to see that they post their physical address and contact details, along with a license. If you run into issues, you don’t want to discover later that this info is missing from their website and you have difficulty contacting someone from the company.
Licensed for Lending
Lenders must be licensed within the provinces that they operate for any type of online lending products that they may offer. Depending on the province, a lender might be required to display a license on their website. These are usually displayed at the top of a website as a link or within the footer with their registration number.
Extra Fees
When looking to borrow, it’s important to look beyond the interest rates and also consider the APR (annualized percentage rate). When the APR is higher than the interest rate, it can be a sign of additional fees. To learn more about APR you can visit here and here for further details.
Unsolicited Offers
Any legitimate lender is not going to phone you or contact you another way to congratulate you for being pre approved for something they did not initiate. If you ever receive such an offer you should do your own due diligence and check whether a company seems to be real.
Incomplete or Missing Contracts
It is the law that you are provided information about a personal loan, installment loan or payday loan, where it outlines the principal you are borrowing, terms, payments, rates, fees and costs. This should be carefully read and a reputable company would walk you through it. If a company providing a loan does not provide this, or there are blanks and pre-checked boxes, this can be another red flag and best avoided.
Misrepresentation
Some scammers will try to convince you they are another lender and will have created a website that looks like the real brand that they impersonate. These are often through unsolicited offers and should be avoided. If they offer came from an email using gmail, yahoo, hotmail or similar that would be your first clue. Any communications like email, sms or even the website itself being with lots of spelling or grammar mistakes is a sign to be cautious as well.
Interest Rates
Within Canada it is illegal for lenders to charge an interest rate over 60% for personal or installment loans under the Criminal Code of Canada, Section 347.1.
Most installment loans can be from $1,000 to $5,000 (or more) with a term 6 to 24 months on average, with some being a larger amount or term available. Lenders set the conditions of the loan when it comes to the amount issued, term and APR, but need to stay below 60% to be compliant. Unsecured installment loans of greater than 35.99% are considered high cost lending, but are still a better option than payday loans since they have longer terms which can make the payments more manageable. Many personal loans can be up to $50,000 or more, usually with longer repayment terms, and are more likely to have better interest rates than installment loans or payday loans. It typically requires a good to excellent credit score to qualify for most personal loans.
Payday loans (loans of $1,500 or less and for a term of 62 days or less) are exempt from the criminal rate of interest ruling, and often considered predatory lending due to their high interest rates. Payday lenders generally charge an APR and often range from 300% to 500%.
There is a maximum amount a lender of payday loans can charge per province.
| Province | Max Amount Charged Per $100 | APR Equivalent |
| Alberta | $15 | 391% |
| British Columbia | $15 | 391% |
| Manitoba | $17 | 443% |
| New Brunswick | $15 | 391% |
| Newfoundland & Labrador | $21 | 548% |
| Nova Scotia | $19 | 495% |
| Ontario | $15 | 391% |
| Prince Edward Island | $25 | 652% |
| Saskatchewan | $17 | 443% |
In Quebec the maximum annual interest rate (AIR) is 35%. The territories don’t have specific rules. You can also read more at the FNCB (Financial and Consumer Services Commission). We make an effort to keep the above information current but it is advised to refer to the provincial website for the most recent APR and maximum amount charged. Most provinces and territories regulate payday lending fees and penalties individually.
Other issues to watch for can include situations where you loan offer expires soon, missing information about interest or cost (or no example of fees),
Note that there are legitimate lenders stating ‘no credit check’ but it’s important to understand why this might be mentioned. If you have bad credit and applying for a payday loan, most lenders are aware that their customers often would not pass a credit check. For this reason they will often use alternative methods like IBV (instant bank verification) to validate things like your income along with looking at whether you have multiple loans, past history of late payments and other factors that help with determining your creditworthiness.
Some (but not all) lenders will also be part of organizations like Financial Consumer Agency of Canada (FCAC) and the Canadian Consumer Finance Association (CCFA) or the Better Business Bureau (BBB).
Online Scams
When you receive an email, sms, mail or a phone call that makes you question its legitimacy, it is possible that it could be a scam. These can come in many forms, from phishing, extortion and personal information scams to credit cards, advance fee loans and more. These are not always targeting older adults, with many 18 to 24 year olds and newcomers being targeted. Avoid clicking any links in suspicious emails or text messages. If you are contacted and asked for sensitive personal information, do not give out any details no matter what they might say, and contact the company, bank or government agency directly to validate the inquiry. If you ever get a spam warning for an email it can also be a sign to be cautious.
You can stay up to date by checking the Canadian Anti-Fraud Centre for past and current scams from and learn more ways to protect yourself. Canadian Anti-Fraud Centre reports that Canadians lost over $500 million to fraud in 2022. Further information may also be found at the Office of Consumer Affairs website as well.
When considering online lenders or legitimate loan companies, you should not only look to see whether they are licensed to operate in your province, but also validate the information. Use the links above in the provincial maximum amount charged chart for more information.
Find more about getting bad credit loans in BC, Alberta, Ontario and what to know about no credit check installment loans to keep yourself informed. Your best protection is to educate yourself as much as you can.
Recommended Reading:
How Loans Work and What to Know Before You Borrow
What to Know About Installment Loans
How to Get a Loan with Bad Credit