How do I figure out what a small loan will really cost me?

When you need money fast, the loan terms are the part you’re most tempted to skim. Try not to. A few minutes with three or four numbers will tell you nearly everything about what you’re agreeing to, and whether the loan will actually help or just push the problem into next month.

Below you’ll find what those numbers mean, a worked example (hypothetical), and a checklist for the feature that trips people up most, the interest-free if repaid by offer. This is general information, not advice about your situation.

Which numbers should I look at?

The amount you receive. This is what lands in your account, and it should match the amount you borrowed. In BC, for example, high-cost lenders aren’t allowed to hold back any of the cost of credit from the principal they advance, according to Consumer Protection BC.

The total you’ll repay. This is the single most useful number. Subtract what you borrowed and you’ve got the full dollar cost of the loan.

The payment schedule. How much each payment is, how often it’s due and when the last one is. A loan can be cheap overall and still be hard to manage if a payment lands on the wrong week.

The rate (AIR and APR). The annual interest rate (AIR) is the interest charged on your balance, expressed per year. The annual percentage rate (APR) also includes certain fees and costs, so it’s a better reflection of what you actually pay to borrow. With no fees, the two can be the same. With fees, the APR will be higher (Consumer Protection BC).

APR is handy for comparing loans. But a yearly percentage is pretty abstract when you’re borrowing for a few months, which is why the dollar total matters so much.

Can you show me an example?

This example is purely illustrative. It isn’t a quote from Buffer or any other lender, and real loans may calculate interest differently.

Let’s say you borrow $1,000 at an annual interest rate of 15%, with no fees, so the APR is also 15%. Interest is charged monthly at 1.25% (15% divided by 12) on whatever balance is still owing, and you repay in equal monthly payments.

Over three months, each payment is $341.70:

You’d repay $1,025.10 in total, so the loan costs you $25.10.

Stretch the same loan over six months and the payments drop to about $174.03, with a total of roughly $1,044.20 (rounding can shift the final payment by a few cents). Each payment is about half as big, but the cost goes up to about $44.20 because you’re carrying the balance longer.

That trade-off is true of almost every loan. A longer term means smaller payments and a bigger total. Neither is automatically better. The right term is usually the shortest one with payments you can actually manage.

For comparison, at the $14-per-$100 maximum that applies to payday loans in provinces that regulate them, borrowing $1,000 would cost $140 in charges, and you’d have to repay it within 62 days, based on the Financial Consumer Agency of Canada’s guide to payday loans. FCAC’s own example, a $300 payday loan for 14 days, costs $42. That’s roughly a 365% annual rate.

What limits does the law set?

Since January 1, 2025, Canada’s Criminal Code has set the criminal interest rate at an APR above 35% (Criminal Code, section 347). Before that it was the equivalent of about 48%, as the Canada Gazette order bringing in the change notes. Offering or advertising credit above that rate is also an offence.

Payday loans are treated separately. Under the Criminal Code, a payday loan of $1,500 or less for 62 days or less, made by a provincially licensed lender in a province with its own payday rules, is exempt from the criminal rate as long as it stays within a federal cost cap, currently $14 per $100 (section 347.1). That’s why payday loans can have such high annualized rates.

Provinces add their own rules. In British Columbia, for example, consumer credit with an APR above 32% counts as high-cost credit, and lenders need a licence. BC payday borrowers also get two business days to cancel without charge (Consumer Protection BC on payday loans). Other provinces do things differently, so check with your provincial consumer affairs office.

What should I check in an interest-free offer?

Some lenders, Buffer included, offer a period where you pay no interest if you repay the full amount. These can save you real money. They’re also the feature people misread most often. Before you count on one, find clear answers to these in your loan documents:

1. When does the period start? The day you’re approved, the day you accept, or the day the money arrives?
2. What exactly counts as repaying in full? Is it the original amount, and by what time on the last day?
3. What happens if you repay after the period ends? Does interest start from that point, or is it calculated back to the start of the loan?
4. Is the offer available every time, or only once?
5. Can you repay early without a charge? (In BC, payday and high-cost lenders can’t charge you for paying early.)

If the documents don’t answer a question, ask the lender in writing before you accept.

How this works with Buffer

If you’re eligible and repay the full amount within Buffer’s 29-day one-time repayment period, you pay no interest. The 29 days start on the day the loan is paid out to you, and if you repay after day 29, interest counts from that payout day. Outside that period, Buffer loans typically carry an APR of 12% to 18%, over terms of typically one to six months. The interest-free period is a one-time benefit: it stays available on each loan until you repay one in full within 29 days, and after that every later loan is charged the regular APR from day one. Buffer doesn’t charge penalties or late fees.

Your loan documents set out your exact rate and payment schedule, so confirm the details there. Use the questions above when you read them.

What should my loan agreement show?

Disclosure rules depend on whether your lender is federally regulated, like a bank, or provincially regulated. For federally regulated lenders, FCAC lists things like the principal, payment amounts and dates, the term, the annual interest rate, the APR if it’s different, and other charges (see Personal loans: know your rights). BC’s rules for high-cost credit agreements also require the total cost of credit in dollars.

Whoever your lender is, don’t sign until you can find the amount borrowed, every payment and its date, the rate, any other charges and the total you’ll repay.

Before you sign

Write down the total you’ll repay and the date of each payment, and check them against your next few pay dates. Then ask yourself honestly whether this covers a one-time gap or one that keeps coming back.