A Canadian Loan Agreement Payment Plan is a legally binding contract between a lender and a borrower that establishes a structured schedule for the repayment of an outstanding debt. This agreement formalizes the terms under which the borrower will repay the lender, including the payment amounts, frequency, interest rate (if any), and consequences of default. The agreement is governed by the laws of the applicable Canadian province and relevant federal legislation, particularly the Interest Act (R.S.C. 1985, c. I-15) and Section 347 of the Criminal Code (R.S.C. 1985, c. C-46).

The Interest Act is the primary federal statute governing interest on debts in Canada. Section 4 requires that whenever any interest is payable by agreement, if the rate of interest is expressed otherwise than as a yearly rate, the debtor is not bound to pay more than interest at the rate of five percent per annum. This means that any interest rate in a loan agreement must be clearly stated as an annual rate to be enforceable at the agreed rate. Section 6 protects borrowers by providing that, for loans secured by real property, no penalty greater than three months’ interest can be charged for prepayment after five years.

Section 347 of the Criminal Code makes it a criminal offence to receive interest at a criminal rate, defined as an effective annual rate of interest exceeding 60%. This applies to all forms of interest, including fees, fines, penalties, and commissions. Provincial consumer protection legislation, such as Ontario’s Consumer Protection Act, 2002 (S.O. 2002, c. 30, Sched. A), provides additional protections for consumer loans, including disclosure requirements and cooling-off periods for certain types of credit agreements.

A Canadian Loan Agreement Payment Plan is needed whenever a lender and borrower wish to formalize a structured repayment schedule for an existing debt. Common scenarios include personal loans between family members, friends, or acquaintances; business loans between companies or between a business and an individual; settlement of outstanding invoices or accounts receivable; restructuring of existing debt when the borrower is unable to pay in full; court-ordered or mediated payment arrangements; and informal lending arrangements that require documentation.

The agreement is particularly important when the parties wish to charge interest on the outstanding balance, as the Interest Act requires the rate to be expressed as a yearly rate for it to be enforceable above 5%. Without a written agreement clearly stating the annual interest rate, the lender may only recover interest at 5% per annum regardless of any oral understanding.

A payment plan agreement should be executed before any payments begin under the new arrangement. If the original loan agreement exists, the payment plan may serve as an amendment or supplement to that agreement. In the context of debt recovery, a payment plan can serve as an alternative to litigation, allowing the borrower to repay the debt in manageable instalments while providing the lender with a legally enforceable commitment.

An effective Canadian Loan Agreement Payment Plan must clearly identify both the lender and borrower with their full legal names and addresses. The agreement must specify the total amount of the outstanding debt and reference the original agreement or transaction under which the debt arose. The payment schedule must be clearly defined, including the frequency of payments (weekly, bi-weekly, monthly, or lump sum), the amount of each payment in Canadian dollars (CAD), the date of the first payment, and the method of payment.

If interest is charged, the annual interest rate must be clearly stated as a yearly rate in compliance with the Interest Act (R.S.C. 1985, c. I-15). The effective annual rate must not exceed 60% as prohibited by Section 347 of the Criminal Code. Late payment provisions should specify the grace period (if any), the late fee percentage or amount, and any additional consequences of late payment.

Default provisions should clearly describe what constitutes a default, the lender’s remedies upon default (including acceleration of the entire debt), and the borrower’s responsibility for legal costs. General provisions should include the governing provincial law, entire agreement clause, amendment requirements, assignment restrictions, severability, and notice provisions. The agreement must be signed by both parties to be enforceable.