Lines of Credit in Canada
This Page's Content Was Last Updated: March 11, 2026
- A line of credit is a revolving loan that lets you borrow funds as needed and pay interest only on the amount you owe.
- It can be an excellent tool for emergencies or low-cost borrowing, particularly when rates are low, such as with Home Equity Lines of Credit (HELOCs).
- Most major lenders do not publish line of credit rates because they vary based on credit history, and collateral.
- In Canada, it is illegal to charge more than 35% APR on a line of credit; this is the maximum allowable rate under federal law.
What Is a Line of Credit
A line of credit is a revolving loan that allows you to borrow against the predetermined limit whenever needed. Once you borrow the money with a line of credit, you can make interest-only payments or repay interest with principal.
Revolving loans are also referred to as open-ended loans because they do not have a fixed maturity date. In addition to not having a maturity date, it is possible to borrow more or borrow again after paying off the principal (without a new credit application), as long as the credit limit is not reached.
Lines of credit are similar to credit cards in terms of loan structure, but they typically come with lower interest rates and no grace period. Nowadays, lines of credit even have their own card that can be used like a credit card.
Average Line of Credit Interest Rate in Canada
Source: Statistics Canada - Funds advanced, outstanding balances, and interest rates for new and existing lending, Bank of Canada.
Types of Lines of Credit
Lines of credit can be categorized in various ways, including secured vs. unsecured and personal vs. business. There are also specific lines of credit, such as student lines of credit.
Secured vs Unsecured Lines of Credit
There are secured lines of credit and unsecured lines of credit. The primary differences between the two are collateral requirements, interest rates, and credit limits. Secured lines of credit, similar to secured loans, require collateral but offer lower interest rates and higher borrowing limits, making them a great option for those who need to borrow a substantial amount of money. Unsecured lines of credit do not require collateral, but they have higher interest rates and lower credit limits.
| Factor | Secured Line of Credit | Unsecured Line of Credit |
|---|---|---|
| Collateral | Required | Not Required |
| Interest Rate | Lower | Higher |
| Credit Limit Determined By | Collateral value, borrower’s credit history, income, etc. | Borrower’s credit history, income, debt, etc. |
| Other Loan Terms | More favorable (e.g. longer repayment periods, lower fees) | Less favorable (e.g. shorter repayment periods, higher or more fees) |
Secured Lines of Credit
Secured lines of credit typically have a low interest rate that is close to or slightly higher than the bank’s prime rate. The credit limit on secured lines of credit is typically based on a percentage of the collateral's value.
A common and most popular type of secured line of credit in Canada is a home equity line of credit (HELOC). The collateral for HELOCs is the home itself, with a credit limit of up to 65% of the home value, assuming there is no mortgage on the house. A combination of HELOC and outstanding mortgage LTV can reach 80%. Another type of line of credit is an investment secured line of credit, which is secured by your investment portfolio. The credit limit for investment portfolios depends on the value of the portfolio, and given the volatility of certain investments, a line of credit may result in a margin call.
Unsecured Lines of Credit
Unsecured lines of credit (ULOCs) include personal lines of credit and student lines of credit. Unsecured lines of credit are not backed by any collateral, which means they are typically riskier and have higher interest rates with lower borrowing limits than secured lines of credit. Unsecured lines of credit can be a good option for those who do not have any assets to secure the loan with. Applying for ULOCs is also easier and quicker than secured lines of credit, as your lender won’t need to verify your collateral.
Personal vs Business Lines of Credit
| Feature | Personal Line of Credit | Business Line of Credit |
|---|---|---|
| Intended Use | Personal expenses | Business expenses |
| Creditworthiness | The individual’s personal credit score and personal financial history. | Primarily the business’s credit score, revenue, and profitability are considered. For business LOCs, lenders primarily assess the business’s credit profile, but owners often need to provide a personal guarantee or cosign, especially for small or new businesses. |
| Liability | The individual is liable for the debt. | The business is liable, but lenders frequently require the owner to provide a personal guarantee, making them personally responsible if the business defaults. |
| Credit Reporting | Activity is reported to personal credit bureaus, such as Equifax and TransUnion. | Activity is reported to business credit bureaus. It may also appear on the owner’s personal credit report if personally guaranteed. |
| Typical Credit Limit | Generally lower. Limits usually depend on personal credit, income, and collateral. | Generally higher, especially for established businesses. Limits are based on the business’s financial health and collateral. |
| Tax Deductibility | Interest is typically not tax-deductible. | Interest and fees are usually tax-deductible as a business expense. |
| Collateral | Does not require collateral, but collateral can provide more favorable loan terms. | Usually requires collateral for small and new businesses. May not require collateral for large and established companies. |
Lines of credit are either given out for personal or business purposes. Both can be used freely when needed. Business lines of credit generally require more documentation and may involve collateral or a personal guarantee. Secured business LOCs often offer lower interest rates than unsecured options, but unsecured business LOCs can be more expensive than personal LOCs.
Line of Credit Insurance
Line of credit insurance protects you or your family from liability if you cannot pay off your line of credit in case of death or disability. Similar to a mortgage life insurance, a line of credit insurance covers a part or your full outstanding balance if a specified event is triggered.
Line of credit insurance comes with premiums that are added monthly to the amount owed on the line of credit. Your lender may offer a line of credit insurance, but it cannot be a requirement for a line of credit approval.
If you decide to get balance protection insurance for your line of credit, ensure you understand the terms and conditions. Some policies only cover a portion of your outstanding balance, while others have age limits or exclude pre-existing medical conditions. Unlike life insurance, balance protection insurance only covers your outstanding debt in the event of your death or an insurable event.
If you have a good life insurance policy, you may not need balance protection insurance as well. Also, consider the cost of the policy, as balance protection insurance can be expensive.
Line of Credit vs Loan
| Feature | Line of Credit | Installment Loan |
|---|---|---|
| Credit Structure | Revolving credit. You can access funds freely up to the credit limit. | Lump sum. You receive the entire borrowed amount at one time after approval. |
| Use of Funds | Flexible. Ideal for ongoing, variable, or unexpected expenses. | Typically used for a specific, one-time purpose. |
| Re-Accessing Funds | You can access more funds as long as the credit limit is not reached. | It is not possible to access additional funds once they are provided. |
| Interest Charged On | Only the outstanding principal. If no funds are used, no interest is charged. | The full outstanding principal amount from the day the funds are provided. |
| Repayment Structure | Flexible. Requires a minimum monthly payment (typically interest), but you can pay more to reduce the principal faster. | Fixed. Payments follow a strict, predetermined schedule (e.g., 60 monthly payments) including principal and interest. |
| Interest Rate Type | Usually variable, changing with movements in the prime rate. | Fixed or variable. |
| Cost | Depends on usage, repayment discipline, and market conditions. | Usually carries lower rates or fees due to reduced flexibility. |
| Credit Score Effect | Affects utilization ratio (keeping usage under 30% is best); high usage can lower your score. | Diversifies your credit mix; on-time payments build positive credit history without utilization impact. |
| Key Criteria | Credit utilization history, ongoing income stability, and tendency to carry balances. | Debt-to-income (DTI) ratio, credit score, employment stability, and collateral value if secured. |
Lines of credit are open-ended, revolving loans, while installment loans are single-time, non-revolving loans. Installment loans include mortgages, personal loans, car loans, and student loans. With a loan, you borrow a lump sum of money upfront, with a fixed and predictable payment schedule. Lines of credit do not provide a fixed amount of money, and repayment is flexible, with a small minimum amount required to be repaid.
Unlike a line of credit, you cannot re-borrow from the same loan. For example, if you make a $10,000 one-time mortgage prepayment, you won’t be able to easily re-borrow $10,000 from your mortgage. Instead, you’ll need to refinance your mortgage, which involves replacing your old mortgage loan with a new mortgage loan, to borrow back the $10,000 as a cash-out refinance. This process requires time and incurs additional costs.
The other main difference is that lines of credit usually have a variable interest rate, while most loans give you a choice between fixed and variable rates. Some lenders may allow you to lock in the interest rate for the balance of your line of credit for a certain term, but it usually reverts to a variable rate after the lock-in period.
Line of Credit vs Credit Card
| Feature | Line of Credit | Credit Card |
|---|---|---|
| Typical Use | Large, infrequent, or ongoing expenses. | Small, everyday transactions. |
| Interest Rate | Generally lower than a credit card. Rates are often variable and tied to the prime rate. | Generally higher, especially if you carry a balance. Rates are often fixed but may be variable. |
| Grace Period | No grace period. Interest accrues from the day the money is borrowed/drawn. | A grace period of usually 21 to 30 days. To avoid interest charges, you must pay the statement balance in full. |
| How to Access Funds | Transfer directly to a bank account, use special checks, or sometimes a dedicated card. | Physical or virtual card for in-person or online purchases. |
| Rewards / Benefits | Rarely offers rewards, points, or cashback. | Commonly offers rewards and may include benefits like purchase protection or travel insurance. |
| Credit Limit | Can often offer a higher credit limit, especially if secured. | Limits are typically lower. |
Lines of credit and credit cards are similar in that they both have a revolving nature. Both can be used to obtain a loan when needed and repay it at a convenient pace. Lines of credit are usually better for large, infrequent, or ongoing expenses that may not be paid off within a month. Credit cards are better suited for smaller, day-to-day purchases that can be paid off within a month. Their differences in purposes are due to their specific characteristics, which include the lack of a grace period, lower interest rates, and a higher credit limit for a line of credit, as well as higher interest rates, a lower credit limit, and a grace period for credit cards.
Line of Credit Tips
If you have a variable interest rate on your line of credit, a higher prime rate will increase your interest rate. You should pay off as much of the line of credit as possible to minimize the effect if the prime rate increases. You may also consider switching to a fixed interest rate by paying the balance off with a loan. You can calculate your interest payments for different scenarios and get the best for your case.
Fees are important when comparing lines of credit. Higher fees may increase your cost of borrowing and may make a line of credit with a smaller interest rate more expensive than a line of credit with higher interest rates and no fees.
Shop around to get the best interest rates and lowest fees. Your financial situation and credit score may also affect your interest rates, so it’s best to improve them as much as possible before asking for a line of credit.
Disclaimer:
- Any analysis or commentary reflects the opinions of WOWA.ca analysts and should not be considered financial advice. Please consult a licensed professional before making any decisions.
- The calculators and content on this page are for general information only. WOWA does not guarantee the accuracy and is not responsible for any consequences of using the calculator.
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- Interest rates are sourced from financial institutions' websites or provided to us directly. Real estate data is sourced from the Canadian Real Estate Association (CREA) and regional boards' websites and documents.