"Zero Interest" Loans

Posted: May 16, 2016 | Last Updated: February 14, 2017

Posted on: May 16, 2016

Written by: Edward (Ned) D. Brown

Sometimes, to induce potential borrowers/debtors to obtain credit, lenders (or sellers) will agree to charge no interest on what is loaned, or, the unpaid price for a credit sale of goods and/or services. 

All that is required is that the debtor repays the (principal) amount owing by the agreed to due date.  The creditor and the debtor may further agree that if the debt is not fully paid by the due date, then the debtor will have to pay interest on the unpaid balance, subsequent to the due date, until payment in full has been made.  When such an arrangement is secured by the charging of a real property interest (ie, typically a mortgage), the arrangement may run afoul of the prohibition contained in Section 8 of the Interest Act of Canada.  To learn more, please click here.

Edward (Ned) D. Brown is a Partner at Pitblado Law, whose practice areas include Aboriginal Law, Financial Services, and Commercial Real Estate. For a second opinion on your corporate and commercial issue, please contact Ned.