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How a line of credit works
A line of credit is an approved limit you can draw on whenever you need it. You are approved once, you take what you need, and you pay interest only on the balance outstanding. Repay some of it and that room becomes available again. There is no fixed end date and no schedule that forces the balance down, which is what makes it flexible and what makes it easy to carry. The lines of credit market runs from bank products at prime plus a spread to online lenders serving weaker credit.
How much you can get
Limits are set by the same three things everywhere, in roughly this order.
- Documented income, and how much of it is already committed. Lenders work from what is left after your existing payments, so a raise moves your limit more than a good month does.
- Your credit. Strong credit earns a larger limit at a lower rate; fair credit earns a smaller one priced higher.
- Whether the line is secured. A line backed by home equity or a deposit carries a far larger limit and a lower rate than an unsecured one, because the lender's risk is covered.
Unsecured personal lines commonly run from a few thousand dollars to around thirty thousand, depending on the file. If the number you have in mind is much larger than that, the product you want is probably secured, or a fixed loan.
What it costs while a balance sits
$5,000 drawn at 9.99%: paying it down against paying the minimum
| Route | You get | When | Total cost |
| Repaid at $250 a month | $5,000 | 22 months | $492.57 interest ($249.66 a month for 22 months) |
| Repaid at the minimum | $5,000 | about 25 years | $3,893.07 interest (9.99% at minimum payments, about 25 years to clear) |
The same balance at the same rate costs a multiple more on minimums, because nothing in a line of credit requires you to finish.
Illustrative example, not a quoted offer: $5,000 drawn at 9.99% and repaid two ways, the minimum modelled as interest plus one percent of the balance. Your rate is variable and moves with prime.
To price a draw on your own numbers, the personal loan calculator takes any amount, rate and term.
When a line beats a loan
Use a line when the need repeats or the amount is uncertain. Seasonal income, a renovation billed in stages, a safety net arranged before anything goes wrong: these are shapes a fixed loan handles badly and a line handles well. Drawing eight hundred dollars twice a year from a line you already hold beats taking two small loans.
Use a loan when the expense is defined and you want it gone. The fixed payment and the end date are the product doing the discipline for you. Our guide to personal loan versus line of credit works through the comparison in detail.
Staying out of a permanent balance
The risk in a line of credit is not the rate. It is that nothing in the product requires you to finish. Set your own schedule the day you draw: pick a monthly amount that clears the balance inside a year and pay that, not the minimum. Treat a repaid line as available for the next real need rather than as income. And if the balance has not moved in six months, the line has stopped being a tool and become a debt, which is the point to convert it to a fixed loan and let the schedule do the work.
| Lender | Amount | Rate | Speed | |
|---|---|---|---|---|
| MDG Financial | $3,200 to $20,000 | 19.8 to 34.99% APR | within 24 hours | See if you qualify |
| Mogo | $300 to $3,500 | 34.37% APR | about 2 business days | See if you qualify |
| Cash Money | $500 to $10,000 | 34.99% APR | within 24 hours | See if you qualify |
| LendDirect | $100 to $15,000 | 34.99% APR | within 24 hours | See if you qualify |
| Fora | $1,000 to $15,000 | 19.9 to 34.9% APR | within 24 hours | See if you qualify |
The lines of credit page compares limits, rates and requirements across every lender we list.
Frequently asked questions
How much of a line of credit can I get?
It depends on your documented income, how much of it already goes to debt payments, your credit, and whether the line is secured. Unsecured personal lines commonly run from a few thousand dollars to around thirty thousand. A secured line backed by home equity or a deposit can be far larger.
Does a line of credit hurt your credit score?
Opening one adds an inquiry and a new account, a small dip. After that it usually helps, because a line reporting a low balance against its limit improves your utilisation. A line drawn near its limit does the opposite.
Do you pay interest on a line of credit you do not use?
No. Interest applies only to the balance outstanding. An open line with a zero balance costs nothing to hold, which is why arranging one before you need it is worth doing.
Sources
- Canada Gazette, SOR/2024-114, for the 35 percent criminal interest rate cap.
Related reading: personal loan vs line of credit and when should you use a personal loan.
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The Smarter Loans Editorial Team produces in-depth, original content to help Canadians navigate borrowing, credit, and personal finance with confidence.
