A line of credit provides flexible access to a predetermined amount of money whenever you need it. You can use the funds to pay for unexpected expenses or cover short-term cash flow issues.
Line of credit interest rates are only charged on the money you actually borrow, not on the entire credit limit. But rates vary between lenders and are based on your personal financial situation, so it’s important to compare your options to find the best line of credit rates in Canada.
What is the average line of credit interest rate in Canada?
The average line of credit interest rate is 10.90% for unsecured lines of credit and 7.09% for secured lines of credit, according to Statistics Canada. The rate you’ll get will depend on personal factors, such as your credit score, income and existing debts. You can either get a fixed rate or variable rate.
Compare current line of credit interest rates in Canada
Banks, credit unions and a wide range of lenders offer lines of credit in Canada. Check the table below to compare current line of credit interest rates across a range of lenders.
7.2% + amount that varies based on your financial situation
Variable
From $5,000
Compare student line of credit interest rates
Several lenders also offer lines of credit specifically designed for students. These can help you cover the costs of post-secondary education, so check the table below for the latest student line of credit interest rates.
Some lenders also offer lines of credit for people who want to make the maximum annual contribution to their RRSP. Check the table below for current RRSP line of credit interest rates.
What is a personal line of credit and how does it work?
A line of credit is an open-ended loan where you can access any amount up to your pre-approved limit, with no fixed repayment term. You can borrow as much or as little as you need, but if you reach your limit, you can’t withdraw more until you pay down your balance. A personal line of credit is similar to a credit card, with the main differences typically being a higher credit limit and lower rates compared to a credit card.
Interest is only charged on the funds you actually withdraw. You won’t need to submit a credit application every time you need to make a withdrawal from your line of credit – once you’re approved, the funds are there for you to use whenever you need them. You can even get some lines of credit that are linked to a debit card, providing easy access to funds.
How do line of credit interest rates work?
Line of credit interest rates in Canada are usually variable. Variable interest rates are often described as “prime + increment %.” The increment percentage will depend on factors including your credit score, income and debt load.
Variable interest rates are tied to the Bank of Canada prime rate, which can be adjusted several times a year. That means that your line of credit interest rate, and subsequent repayment amount, could change over time.
You can see how the average interest rates in Canada on secured and unsecured lines of credit have changed over the past decade (since January 2013) in the graph below.
Average line of credit interest rates in Canada
How do you calculate line of credit interest rates in Canada?
In order to calculate how much your rate will be, you simply have to add the bank’s prime rate to the increment %. So, for example, if your rate is described as “prime + 7%,” you first need to find the bank’s prime rate, which is usually listed on its website. Let’s say the bank’s prime rate is 7.2%. In this example, you’ll add 7% to that, so your interest rate would be 14.20%. If the prime rate goes up by 0.25 percentage points in a few months from 7.2% to 7.45%, your interest rate would then change to 14.45%.
Can I get a line of credit with bad credit in Canada?
If you’re looking for a line of credit with bad credit in Canada, you can potentially qualify to get one from online lenders that specialize in working with bad credit borrowers. Some legitimate bad credit online lenders in Canada who offer line of credit products include Mogo and Fora. Another option is to apply for a bad credit line of credit with a loan search platform – like Loans Canada or LoanConnect – who will then be able to match you with a number of lenders you qualify with.
Watch out for
High interest rates. If you have bad credit, line of credit interest rates for bad credit can be as high as 47.42%. A line of credit is convenient because its open term allows you to make payments any time, but if the rate is high, interest can quickly add up the longer you take to pay off the balance.
Overspending. Only borrow what you absolutely need even if you’re approved for a higher amount.
Alternatives to a personal line of credit when you have bad credit
If you’re on the fence about whether a personal line of credit is right for you, consider these alternatives:
Unsecured personal loans. Apply for a fixed loan amount and pay it off in installments. APRs for bad credit personal loans range between 18% and 47%. Learn about the best bad credit personal loans in Canada.
Credit card cash advance. The APR of a credit card cash advance is around 23%, while there’s also a fee of around 1-3% of what you borrow.
Secured vs unsecured line of credit
When you open a line of credit, you’ll need to choose between two options:
Secured line of credit. If you want to borrow a larger sum of money, some lenders require you to back your line of credit with collateral, typically a savings account, property or Guaranteed Investment Certificate (GIC). This often results in lower line of credit interest rates since it poses less risk to the lender. The lender can take possession of the collateral if you aren’t able to pay back your line.
Unsecured line of credit. Like unsecured personal loans, you don’t need any collateral to back an unsecured line of credit. While these typically come with higher interest rates, you don’t risk losing any property or savings if you’re unable to repay what you borrow and the approval process is quicker.
Line of credit vs a personal loan: What’s the difference?
Some of the main differences are how they’re typically used and how they’re repaid:
Personal loan
Line of credit
Often used for a big, one-time purchase
Often used for ongoing purchases
Repaid over a fixed term, usually between 1 and 7 years
Credit card vs line of credit: What’s the difference?
One main difference is interest rates. Line of credit interest rates in Canada are usually lower than credit card interest rates.
Another key difference is how they’re used. A credit card is typically used for small everyday expenses, while a line of credit is typically used for big expenses such as major home renovations or emergencies. And although some lines of credit come with a card linked to the credit account, it’s more common that you won’t get a card and instead will need to transfer money from your line of credit to your chequing account to get access to the funds.
Generally, lines of credit are great in two situations: When you can’t predict the cost of something and when you need fast access to money. You can use a line of credit for just about any expense, such as:
Rainy day fund. A line of credit can give you quick access to money if you have an unexpected expense that is difficult to pay for with a credit card.
Home improvements. It can be hard to predict how much a home improvement project will cost down to the last dollar, so a line of credit offers flexible access to funds.
Large ongoing projects. Since lines of credit can have higher limits than credit cards, it can be a more flexible choice. In addition, line of credit interest rates are cheaper, keeping your costs lower.
How much can I borrow on a line of credit in Canada?
Most lenders offer lines of credit from $5,000 and up to between $25,000 and $50,000 for unsecured lines of credit. However, you may find lower minimum limits from some lenders.
The amount you can borrow on a secured line of credit is typically maxed out at a percentage of the value of the collateral you provide, such as 65%. However, the exact amount you qualify for will vary depending on your personal finances, credit profile and the lender you choose. Your history with the lender may also impact how much you’re able to borrow.
Once you’re approved for your credit limit — the maximum amount that you’re able to borrow overall — you can start drawing from your line.
How to compare lines of credit
Keep these features in mind when comparing lines of credit:
Interest rate. Compare line of credit interest rates across lenders to find the most affordable borrowing option.
Fees. Check the fine print for details of any fees that apply, such as establishment or monthly fees. Also find out what charges apply if you’re late making a payment.
Credit limit. Check the minimum and maximum line of credit amounts the lender offers to make sure you’ll be able to access a suitable amount.
How you access your funds. Find out how you will access the line of credit — for example, will it be linked to your chequing account or come with a debit card?
Secured or unsecured. Securing your line of credit with collateral can help you qualify for a lower rate and a larger loan amount. However, it also means the lender could seize your collateral if you can’t make on-time payments.
Repayments. Find out how the minimum monthly payment on your line of credit is calculated and how much you’ll be required to pay each month.
Where can I get a line of credit in Canada?
There are many options for where to get a line of credit in Canada including banks (such as RBC, Tangerine and Scotiabank), credit unions (such as Desjardins and Vancity) or online lenders (such as Mogo and Cash Money).
Banks and credit unions tend to offer lower interest rates than online lenders, but only to borrowers with good or excellent credit. Online line of credit lenders tend to be a better fit for bad credit borrowers who can’t qualify with other lenders.
How can I apply for a personal line of credit?
You can apply for a personal line of credit online, over the phone or in person. The exact application process will vary by lender, but you’ll need to provide your personal and contact information as well as details of your finances.
To qualify, you’ll typically need to have good credit, a low debt-to-income ratio and a regular source of income. Lenders will ask for a government-issued ID and bank statements, plus information about your employment.
When you’re ready to apply, compare lenders that offer lines of credit to learn more about their specific requirements.
What information will my lender ask for?
Eligibility criteria for lines of credit varies between lenders, but you’ll generally need to provide the following information:
Proof of income. You’ll have to show proof of an ongoing steady income. You could provide pay stubs or a bank statement, while some lenders offer instant banking verification so they can access your bank statements electronically.
Existing debt. You may be asked to provide information on your current debts, including your mortgage or housing payments.
Proof of ID. You’ll need to provide a form of government-issued ID to verify your identity.
Details of your assets. If you’re applying for a secured line of credit, lenders typically use savings and investment accounts as collateral for large lines of credit.
How long does it take to get a personal line of credit?
It typically takes only a few minutes to complete an application for a personal line of credit. Processing times vary by lender: banks may take one to two weeks to reach a decision, while online lenders may have an answer for you in less than an hour.
If you’re approved, you may be able to start drawing from your line of credit immediately.
What happens if I can’t repay my line of credit?
If you aren’t able to make a payment, reach out to your lender to discuss your options as soon as possible. You may be able to make small minimum payments toward your debt or move to an alternative payment schedule.
Defaulting on your line of credit will cause your credit score to take a hit and could lead to multiple fees. If you secured your credit line with collateral, your lender can confiscate those assets to cover your debt.
Pros and cons of a line of credit
Pros
You’re only charged for what you use. You’ll be charged interest only on the funds you actually borrow, as opposed to the total credit limit.
Easy access to funds. If your account is linked to a debit card, you can withdraw the funds you need through ATMs. You’ll also typically have easy access to your line of credit via online or mobile banking.
Flexible terms. You can use the funds how and whenever you need to, making for a very flexible financing solution. You can also withdraw however much you’d like (up to your credit limit).
Revolving line of credit. The money in a line of credit is there when you need it, so you don’t need to reapply for a loan whenever you need access to funds.
Lower rates. If you’ve got good to excellent credit, you can qualify for lower line of credit interest rates than you could get with a credit card.
Cons
Fees and charges. Be mindful that fees and charges may apply, such as an establishment fee or a monthly service fee.
Interest rates. If line of credit interest rates go up, you may face difficulty paying back your line of credit.
Overspending. Just because you have access to a line of credit, that doesn’t mean you should use all of it. Make sure you only use your credit for essential purchases to avoid taking on too much debt.
What is line of credit insurance?
Banks and other lenders often offer line of credit insurance as an additional monthly cost. Different types of line of credit insurance may include disability insurance, life insurance, critical illness insurance or job loss coverage. Generally, these types of insurance allow you to stop paying your line of credit or have your repayments temporarily suspended if you suffer an illness or injury and are unable to work, or will pay off the outstanding balance in the event of your death.
Line of credit insurance is typically charged monthly and can cost around $0.25 – $10 per $1,000 borrowed.
Do I need line of credit insurance?
Whether or not line of credit insurance is worth it will depend on your financial priorities. It likely won’t make sense to buy line of credit life insurance if you already have a life insurance policy where the payout will be enough to cover your line of credit debt as well as other expenses.
Your health insurance coverage may also come with a monthly payout in the event of illness or critical injury. If you don’t already have coverage through independent insurance, consider getting line of credit insurance if you know you won’t have the financial resources to cover the payments should the unexpected happen.
Bottom line
A line of credit offers the convenience and easy access to funds of a credit card, but with potentially lower interest rates than a credit card. Compare line of credit interest rates across a range of lenders, but remember that factors like your credit score, income and debt-to-income ratio could impact the rate you qualify for.
Frequently asked questions
If you want to apply with a bank or credit union, you will typically need good to excellent credit (above 660). On the other hand, online lenders can consider borrowers with bad credit (below 560), but you'll have to pay much higher line of credit interest rates.
Not necessarily. A line of credit is useful if you need to borrow for a variety of needs without having to reapply every time. However, try to pay off the balance as soon as possible because interest accrues the moment you withdraw from your line of credit. Also, with such easy access to money, it's important to control your spending — a line of credit is there to cover large expenses or unexpected bills, not your day-to-day expenses.
While it varies between lenders, you will usually need the following to qualify for a personal line of credit:
Be at least 18 years of age, or the age of majority in your province or territory.
Be a Canadian citizen or a permanent resident with a valid Canadian address.
Have a steady income and be employed.
Lines of credit can be secured or unsecured. As an example, a home equity line of credit (or HELOC) is a popular secured line of credit. Check with the lender to see what options are available for your financial situation.
Not necessarily. While most lines of credit come with variable interest rates, some lenders also offer the option of fixed interest rates.
Yes. You can pay your line of credit off at any time.
A good line of credit interest rate is close to the lender's prime rate, which is currently April 2024 or lower. Check the lender's website for details of their current prime rate, and remember that the rate you qualify for will depend on factors such as your credit score and income.
Tim Falk is a freelance writer for Finder. Over the course of his 15-year writing career, he has reported on a wide range of personal finance topics. Whether you're investing in stocks and ETFs, comparing savings accounts or choosing a credit card, Tim wants to make it easier for you to understand. When he’s not staring at his computer, you can usually find him exploring the great outdoors.
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