A personal line of credit provides flexibility when accessing funds, letting you borrow money on an as-needed basis, whenever the need for extra cash arises. You can access the funds as many times as you want, repay them, and then borrow again. When applying for a personal line of credit, securing the lowest rate possible is key, as it can help keep costs low.
Let’s take a closer look at these convenient financial tools and where you find the best line of credit rate in Canada.
What Is A Line Of Credit?
A line of credit is a flexible loan product that provides you with access to funds up to a specific limit. You can draw from this account as needed, and only pay interest on what you withdraw, making this a very flexible way to borrow money.
Line Of Credit Features
| Loan Amount | You’ll be approved for a certain credit limit, which represents the maximum amount you can withdraw from your credit line. Amounts generally start at $2,000 – $5,000 minimum. |
| Terms | Lines of credit are typically open-ended, which means that there may not be a fixed end date. You can continue to borrow, repay, and borrow again, as long as you follow the lender’s terms. |
| Repayment | The revolving characteristic of a line of credit, similar to a credit card, means you can draw from the account as much or as little as you like. Once you repay what you’ve borrowed, you can draw from it again and again. |
| Interest Rate | Credit line interest rates are usually variable, which means it can fluctuate over time. You only pay interest on the outstanding balance of your credit line, not the entire credit limit. |
Learn more: Personal Loan vs. Line of Credit
What Is The Average Interest Rate On A Line Of Credit?
As of November 2024, the average interest rate on unsecured personal lines of credit is 9.41%. For secured personal lines of credit, interest rates average at 5.65%.
That said, rates can vary significantly among different lending groups and lenders. Further, the rate you may be able to secure will be based on your creditworthiness. Stronger income and higher credit score can help you secure a lower rate on a credit line.
Best Line Of Credit Rates In Canada 2025
In Canada, you can get lines of credit from a variety of sources, including traditional banks, credit unions, and alternative lenders.
Traditional Banks
Traditional banks typically offer the best rates and terms on a personal line of credit compared to alternative lenders or credit cards. They also tend to offer higher credit limits for existing customers, which can be beneficial when larger amounts of money are needed to cover a big expense. However, you’ll need good credit to get approved.
Here’s an overview of Canada’s big banks and the personal lines of credit they offer:
RBC
RBC offers clients its Royal Credit Line, a flexible financial product that allows consumers to withdraw as much or as little as required at any time, within the credit limit. You can access the funds at an ATM, through online banking, or through a written cheque from your account.
- Credit Limits: Starting at $5,000
- Interest Rates: competitive rates that are typically lower than credit card rates; based on prime rate (currently 5.2%)
TD Canada Trust
A TD personal line of credit provides you with easy access to cash whenever you need it. You can withdraw and reuse your credit over and over, without having to reapply.
- Credit Limits: $5,000 to $50,000
- Interest Rates: Variable or fixed; rate depends on creditworthiness of the applicant and prime rate (currently 5.2%)
Scotiabank
Use Scotiabank’s personal credit line as a flexible way to access money, much like you would with a credit card, but with lower rates.
- Credit Limits: $5,000 to $75,000
- Interest Rates: Varies based on applicant’s creditworthiness
BMO
A BMO line of credit gives you quick access to cash to cover a host of expenses. Only pay interest on what you borrow, and access your credit account again and again as required.
- Credit Limits: Up to $25,000
- Interest Rates: BMO’s prime rate (5.2%) is used to set variable interest rates for credit lines
CIBC
Get flexible access to cash from a CIBC line of credit for small expenses to more expensive costs, with interest rates lower than most credit cards.
- Credit Limits: $5,000 and up
- Interest Rates: Variable and based on CIBC’s prime rate (currently 5.2%)
Credit Unions
Credit Unions in Canada, like Desjardins, Vancity, and Meridian Credit Union, tend to offer competitive rates and terms on their personal credit line products. However, you’ll need to become a member before you can take advantage of their offerings.
Online Lenders
Online lenders, like Mogo, sometimes offer decent rates on lines of credit. Borrowers with bad credit can also access a line of credit through these online lenders as they base their approval on a variety of factors. However, rates are generally higher with online lenders compared to traditional banks.
| Loan Amount | Interest Rate | ||
| Fora | $1,000 – $15,000 | 19.9% – 34.9% | Learn More |
| Cash Money | Up to $10,000 | 34.99% | Learn More |
| Bree | Up to $500 | 0% | Learn More |
| Nyble | Up to $250 | 0% | Learn More |
| Mogo | Up to $5,000 | 34.37% | Learn More |
How Does A Line Of Credit Work?
Let’s look at how a line of credit works, from withdrawal to repayment.
How To Withdraw Money From A Line Of Credit?
Once your lender sets up your credit line, how do you access the funds?
You can access money from your line of credit in several ways, depending on your lender:
- Online Banking: Log into your online banking and move funds from your line of credit to your chequing account.
- Mobile App: Like online banking, your bank’s mobile app allows you to log into your account and transfer funds from your credit line to your chequing account.
- ATM: Withdraw cash from a bank machine using your debit card if your line of credit is linked to a bank account.
- Cheque: Some financial institutions provide cheques linked to your line of credit.
- In-Person: Visit your local bank branch to withdraw money directly from your account at the teller.
How Interest Works With A Line Of Credit
Interest on a line of credit (LOC) works differently from a traditional loan because you only pay interest on the amount you borrow, not the total credit limit. Although you can repay your balance at any time, you generally need to cover at least the interest payment every month.
Interest rates on credit lines are usually variable, though fixed rates may sometimes be available.
Fixed Rates
Fixed interest rates on a line of credit mean that the rate does not change for a specified period.
If your line of credit comes with a fixed rate, the rate will stay the same throughout the term of the credit line. In this way, your interest payments will be the same, making it easier to anticipate how much you’ll have to pay and budget for the future.
| Note. Fixed interest rates may apply for a specific period or the entire duration of the line of credit. Once the fixed-rate term expires, the credit line may convert to a variable rate. |
Variable Rate
A variable rate means that it can change over time based on market conditions and the lender’s prime rate. The interest rate may be adjusted at regular intervals based on the terms of your credit line.
Repayment On A Line Of Credit
Paying back the amount of money you borrow from your line of credit is relatively simple. You can repay part or all of the funds borrowed from your line of credit at any time. As you pay back the funds borrowed, they become available again.
However, you’ll need to make the minimum payment each month to cover the interest accrued over the billing period.
Paying off your line of credit as soon as you can is best, as it can help to reduce the amount of interest you have to pay. As mentioned, interest on a credit line is calculated daily, from the day you withdraw the funds. So, it’s recommended to start paying off the balance soon after withdrawing to avoid paying more in interest than necessary.
Types Of Lines Of Credit In Canada
There are two types of lines of credit in Canada: unsecured and secured.
Unsecured Personal Lines Of Credit
An unsecured personal line of credit is a flexible loan without collateral. Borrowers pay interest only on the amount used, often at variable rates. It provides ongoing access to credit but typically comes with higher interest rates and potentially lower credit limits due to the lack of security. Approval generally requires a good credit score and a strong financial profile.
Perks Of An Unsecured Personal Line Of Credit
- No Risk To Assets: Since you’re not using collateral to back the account, there’s no risk of losing valuable assets.
Risks Of An Unsecured Personal Line Of Credit
- Higher Interest Rates: Your lender may charge a higher interest rate to offset the risk of having no asset of value to back the loan.
- Higher Credit Requirements: Again, the lack of collateral might require that you have a better credit score to reduce the lender’s risk.
Secured Personal Lines Of Credit
A secured personal line of credit is a loan backed by collateral, such as a car or house. This added security reduces the lender’s risk and therefore comes with lower interest rates and higher credit limits compared to unsecured credit lines. You can access money from your credit line as needed up to your limit and only pay interest on the amount borrowed.
Perks Of A Secured Personal Line Of Credit
- Lower Interest Rates: The collateral reduces the lender’s risk, so you may be able to get a lower interest rate on a secured line of credit compared to an unsecured credit line.
- Higher Credit Limits: Again, the reduced risk for the lender due to the collateral could make you eligible for a higher credit limit.
Risks Of A Secured Personal Line Of Credit
- Risk To Assets: If you don’t repay what you borrow, you could risk losing the asset backing your credit line.
- More In-Depth Approval Process: Applying for a secured line of credit may require more documentation and a more comprehensive assessment of the collateral used to back the loan.
Factors To Help You Get The Best Line Of Credit Rates In Canada
Several factors can affect the interest rate that you’re offered on your line of credit, including the following:
Credit Score
A higher credit score can result in lower interest rates because lenders perceive you as less risky. On the other hand, a lower credit score typically means higher interest rates because of the increased perceived risk.
Loan Amount
Your credit limit also plays a role in your interest rate:
- Larger lines of credit: A higher credit limit typically comes with lower rates due to increased borrowing power and perceived lower risk.
- Smaller lines of credit: A lower credit limit often comes with higher rates due to the higher perceived risk and limited borrowing flexibility.
Lender Type
The type of lender you apply with impacts your interest rate:
- Banks: Typically offer lower rates, especially to clients with good credit.
- Credit Unions: Often provide lower rates, as they are member-based and operate on a not-for-profit platform.
- Alternative Lenders: Typically have flexible loan criteria but typically charge higher interest rates, especially for borrowers with lower credit scores.
Secured Vs. Unsecured
There are typically rate differences for secured and unsecured lines:
- Secured: Generally come with lower interest rates because they’re backed by collateral, reducing the lender’s risk.
- Unsecured: Typically have higher rates because they’re not backed by a valuable asset, making them riskier for lenders.
Promotional Offers Or Discounts
Promotional offers and discounts can help lower your interest rate on a line of credit. For instance, lenders may try to attract new clients by offering special rates or discounts. Promotions might include lower interest rates for a certain period. Lenders may also reward existing clients with accounts in good standing with loyalty discounts on new lines of credit.
Shop Around And Compare Lenders
Shopping around and comparing lenders and their offerings can help you find the lowest rates and best loan terms based on your credentials. This ensures that you don’t pay more to borrow than you need to. Loans Canada is a great place to start comparison shopping for a line of credit with a competitive rate.
| Note: External economic factors can also affect your rates. For instance, the lender’s prime rate directly affects variable-rate lines of credit. In other words, variable rates adjust accordingly based on changes in the prime rate. |
Pros And Cons Of Lines Of Credit In Canada
Credit lines can be a great source of extra funds, but they also come with potential drawbacks that should be considered. Make sure to weigh the pros and cons of lines of credit before applying.
Pros Of Lines Of Credit
Lines of credit come with several benefits, such as the following:
- Flexible Borrowing. The funds from a line of credit are readily accessible, meaning you can withdraw from the account any time instantly, up to your credit limit.
- Lower Interest Rates Than Credit Cards. The rates charged on lines of credit are typically lower than credit cards, particularly for secured credit lines.
- Revolving Credit. You can draw from the account on an ongoing basis without reapplying for additional financing when the need for extra money arises.
Cons Of Lines Of Credit
Before applying for a line of credit, be sure to consider the potential downsides:
- Interest Charges. Lines of credit typically come with variable interest rates which are associated with lender prime rates. If prime rates increase, so will the rate on your credit line, which means your interest payments will increase.
- Risk Of Over-Borrowing. Having easy access to money on a regular basis could lead to mounting debt if you don’t have financial discipline.
- Impact On Credit Score If Mismanaged. While you don’t have to make regular installments on your credit line, you do still have to make minimum payments each month to cover the accrued interest. Failure to do so could have a negative effect on your credit score.
Other Types Of Lines Of Credit
In addition to personal lines of credit, other types of credit lines are available in Canada:
Home Equity Line Of Credit (HELOC)
A HELOC is secured against your home equity. Because of this collateral, HELOCs typically come with lower interest rates than unsecured personal lines of credit. You can borrow up to 65% of your home’s value, less any outstanding mortgage. This type of credit line is ideal for large expenses, like home renovations, big purchases, or investment opportunities.
Student Line Of Credit
A student line of credit is offered by financial institutions to help students cover the cost of tuition, books, and living expenses. These types of credit lines typically come with lower rates than personal lines of credit to help students keep their costs as low as possible. Repayment terms vary, with interest-only payments required while in school.
Once you graduate, there’s typically a grace period before full repayments start. Then, the credit line works like a regular personal line of credit.
Bottom Line
A line of credit can provide you with great flexibility while accessing much-needed funds compared to traditional installment loans. But to minimize interest costs and maximize financial flexibility, it’s important to shop for the best rates on credit lines. Comparing options from all types of lenders can help you secure the best interest rate for a line of credit with favourable terms. You can quickly and easily do this with a comparison site like Loans Canada.
