What Is a Line of Credit in Canada?

Last Updated: February 17, 2026 at 9:01 p.m. MST | 10 min read | Written and reviewed by the Capital Corner Editorial Team

What it is, how it works, and what to watch out for.

A line of credit (LOC) is a borrowing agreement where a lender approves you for a set maximum amount — say, $10,000 — and you can borrow from it, repay it, and borrow again without reapplying each time. You only pay interest on what you actually use, not on the full limit.

That is what makes a line of credit different from a regular loan. A loan gives you one lump sum and you start paying it back immediately. A LOC lets you dip in and out as needed — which is what makes it so flexible, and, if you are not careful, so easy to misuse.

What Types of Lines of Credit Exist in Canada?

There are two main types:

Personal line of credit (unsecured): No asset required to back it up — meaning you do not need to own a home or other property to qualify. You qualify based on your income, credit score, and how much debt you already have. Because there is nothing securing the loan, interest rates are higher — typically in the 7% to 10% range at current rates.

Home equity line of credit (HELOC, secured): If you own a home, you can use it as security for a larger line of credit at a lower interest rate. Secured means the lender has your home as a backup if you cannot repay. The more equity you have built up in your home — meaning the more of it you actually own — the more you may be able to borrow.

There are also student lines of credit, which some banks offer for post-secondary students, and business lines of credit for self-employed borrowers.

How Does Interest Work on a Line of Credit?

You are only charged interest on the balance you are carrying — not on your full approved limit.

For example: You have a $15,000 LOC and you use $3,000 to cover a car repair. At a 9% interest rate, you owe roughly $22.50 in interest that month on that $3,000. Borrow another $3,000 the following month and now you are paying interest on $6,000 — your interest cost doubles. The more you carry, the more you pay.

Most lines of credit in Canada have variable interest rates — meaning the rate can go up or down over time depending on what the Bank of Canada does. If rates rise, your interest cost rises too.

Minimum monthly payments are usually interest-only. That is convenient — but it also means your balance never shrinks. If you borrowed $3,000 and only ever pay the minimum interest each month, you still owe $3,000 a year from now. Pay more than the minimum whenever you can.

How Do You Qualify for a Line of Credit in Canada?

Lenders look at a few key things:

Credit score: A score of 660 or higher improves your chances. A score above 720 often unlocks better rates. The higher your score, the better the rate and limit you are likely to be offered.

Income and employment: Lenders want to see a steady income and that you can afford the payments.

Existing debt: Lenders look at how much of your monthly income already goes toward debt payments. As a general rule, lenders prefer that number to be below 42% of your monthly income before taxes. The more of your paycheque that is already spoken for, the less room they see for a new borrowing product.

If you own a home and have built up at least 20% equity in it, you may also qualify for a HELOC at a lower rate. Your bank can tell you whether you have enough equity to qualify.

For a closer look at how your credit score affects your borrowing options, read our article: What Affects Your Credit Score in Canada?

What Can You Use a Line of Credit For?

A LOC works best when you have a plan for what you are borrowing and how you will pay it back.

Common uses include:

Planned large purchases: A renovation, a move, or a large expense you want to pay off over time.

Debt consolidation: Using a lower-rate LOC to pay off higher-interest debt, like credit card balances. You still owe the money — but you are paying less interest on it.

Cash flow gaps and unexpected expenses: A car repair, a medical bill, a slow month. A LOC can help in a pinch — but if you do not have an emergency fund yet, building one is a better long-term plan than borrowing every time something comes up. Our article What Is an Emergency Fund in Canada? explains how to get started.

What Is the Difference Between a Line of Credit and a Credit Card?

Both let you borrow, repay, and borrow again. The main differences:

Interest rates: LOC rates are almost always lower than credit card rates. Most credit cards in Canada charge 19.99% on purchases. A personal LOC is typically 7% to 10%.

Access: Credit cards come with a physical card for everyday spending. A LOC works differently — when you need money, you transfer it from your LOC into your bank account, and then spend from there.

Limits: LOC limits are often higher than credit card limits.

For anyone carrying credit card debt, a lower-rate LOC can be worth exploring as a way to reduce what you are paying in interest. If you are dealing with credit card debt and not sure where to start, our article How to Pay Off Credit Card Debt in Canada Without Losing Your Mind is a good place to begin.

Does a Line of Credit Affect Your Credit Score?

Yes — in a few ways.

When you apply, the lender pulls your credit file to make a decision. That temporary check can lower your score by a few points. It is not a big deal on its own, but if you apply to several lenders in a short period, those checks can add up.

Once open, how much of your LOC you are using affects your score — the same way a credit card balance does. If your limit is $10,000 and you are carrying $7,000, that is a lot of your available credit being used up, and your score will feel it. Keeping your balance well below your limit is better for your score.

The upside: a LOC used responsibly builds your credit history over time. That works in your favour the next time you need to borrow. For a full breakdown of what affects your score, see our article: What Affects Your Credit Score in Canada?

Bottom Line

A line of credit is a flexible borrowing tool that lets you access funds when you need them and pay interest only on what you use. It is not free money — and it is easy to let a LOC balance grow if you are not paying attention. Used with a plan, it can be one of the most affordable ways to borrow in Canada. Used without one, it can become a debt you keep rolling forward.

Get Started Today

☐ Check your credit score so you know where you stand before applying

☐ Before using a LOC, write down what you are borrowing for and when you plan to repay it

☐ Set a reminder to pay more than the minimum each month

☐ If you are considering applying, ask your bank what options you qualify for and what rate they would offer

☐ You do not have to borrow where you bank — it is worth comparing rates at a second institution

Frequently Asked Questions

Q: What credit score do you need for a line of credit in Canada?

A: Most lenders look for a credit score of 660 or higher to approve a personal line of credit. A score above 720 gives you a better chance of approval and a lower interest rate. Each lender sets its own requirements, so there is no single cutoff — but the higher your score, the better your options will be.

What Affects Your Credit Score in Canada covers the five main factors that determine your score and what you can do to improve it.

Q: Is a line of credit better than a credit card in Canada?

A: It depends on what you need the money for. A line of credit usually has a lower interest rate than a credit card — typically 7% to 10% compared to 19.99% — which makes it a cheaper way to borrow larger amounts over time. A credit card is more convenient for everyday purchases and gives you an interest-free grace period if you pay your balance in full each month. If you are carrying a balance, a line of credit is usually the less expensive option.

How Credit Card Interest Works in Canada explains how credit card interest is calculated and why carrying a balance costs more than most people realize.

Q: Can you pay off a line of credit early in Canada?

A: Yes. Most lines of credit in Canada can be paid off at any time without a penalty. Because interest is charged only on what you are carrying, paying down your balance sooner means you pay less interest overall. There is no set end date on most lines of credit — you can pay it off and leave it open for future use, or close it entirely.

Disclaimer

The information in this article is for educational purposes only and does not constitute financial or legal advice. Everyone’s financial situation is different. Please speak with a qualified financial professional before making any decisions about borrowing or debt.

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