Lines of credit: a revolving limit you draw on and repay

What a line of credit is

A line of credit is a revolving limit: the lender sets a maximum you can draw against, you take what you need, and you can draw again as you repay. You pay interest only on the amount outstanding, not on the full limit, so an unused portion does not normally generate interest. That is the practical difference between a line of credit and a lump-sum loan paid out once.

This page describes the unsecured version, where you pledge no asset. A secured line, typically one backed by a home, can support a larger limit but puts the property behind the debt. A personal line of credit simply means the borrower is an individual. loanmoose.ca is not a lender. It does not make loans, set rates or make credit decisions. It is a matching and comparison service, and any limit or price you see comes from a lender that reviews your file itself.

Who it suits

• You have costs that arrive unevenly, such as repairs, a move, tuition or a seasonal gap in income, and you would rather have one limit ready than apply repeatedly.
• You can pay more than the minimum in the months you have room, and you intend to clear the balance rather than carry it indefinitely.
• You want the interest clock to run only on what you have actually drawn.
• Your income is documentable and your existing payments are modest relative to it.
• You would use a limit as a buffer alongside an emergency fund, not as a replacement for one.
• You can read a repayment clause and are comfortable with a limit that may be reviewed or repayable on demand.

What a lender checks

Four things carry most of the weight: income, existing payments, credit file and security.

Income. Lenders want to see that it is documentable and steady enough to cover a new payment on top of what you already owe. Pay stubs, notices of assessment or business financials are the usual evidence. If income varies, expect more questions.

Existing payments. Your debts are weighed against your income. Where a home secures the borrowing, federally regulated lenders generally work to a total debt service ratio ceiling of about 44%, and OSFI Guideline B-20 requires qualifying an uninsured mortgage at the greater of the contract rate plus 2 percentage points and 5.25%. Insured mortgages and provincially regulated lenders are not all subject to B-20, so the test you face depends on who you are dealing with.

Credit file. The lender reads your history at Equifax Canada or TransUnion Canada. Both are national bureaus, and a free copy of your credit report is available from each. Public records have their own clocks: a consumer proposal stays on your credit report for 3 years after completion, or 6 years from filing, whichever comes first, and a first bankruptcy stays on your credit report for 6 years after discharge. If you are searching for a line of credit for bad credit, note that this is not a separate product a lender labels that way. A thin or damaged file usually means a smaller limit, a higher price, a requirement to pledge security, or a decline. Reading your own report first shows you what a lender will see.

Security. An unsecured line has none, which is why the rest of the file matters more. On a secured line, the asset is appraised. At federally regulated lenders, a home equity line of credit is generally limited to 65% of appraised property value, with total secured lending usually capped at 80%.

If you are working out how to get a line of credit, the sequence is plain: know your numbers, gather your documents, and apply to a lender licensed in your province or territory. Lending in Canada is licensed provincially, so the regulator and the rules differ by province and territory. Federally regulated financial institutions' consumer complaints go to the Financial Consumer Agency of Canada; provinces license and supervise most other lenders.

What it costs to carry

No single rate applies across the market, and this page does not quote one. What you are offered depends on your file, the lender and the province. What you can do is price the parts.

Interest is usually the largest part, and it is normally described as a margin over an index. The Bank of Canada publishes a policy interest rate, a prime rate, conventional mortgage rates and Government of Canada benchmark bond yields; these are benchmarks, not offers. Your margin is the lender's decision, and it can move if the contract lets the lender vary it. The balance you carry, not your limit, drives the interest.

Fees sit alongside interest: an annual or administrative fee on some products, a fee for a credit review, and sometimes a discharge or closure fee. Ask for the full fee schedule in writing rather than relying on a summary.

Insurance is the third component. Creditor insurance on a line of credit is optional in most cases and is priced separately. It is not the same thing as your credit file or your limit, and declining it should not change whether you qualify.

The fourth point is the gap between the headline rate and the total cost of borrowing. A headline rate applies to the balance you carry; the total cost of borrowing also counts fees, insurance, and time. A limit with a lower headline rate, held for longer, can cost more than a limit with a higher headline rate cleared quickly. That is why the accurate answer to what it costs is that it depends on your circumstances, and the number that matters is the one written into your own agreement.

One outer boundary exists. The Criminal Code criminal rate of interest is 35% per year (s. 347), which sets a legal ceiling on what can be charged. Below that ceiling, the market sets its own price.

How it compares with the alternatives

Option	When it fits	What to watch
Unsecured line of credit	You have uneven costs and documentable income, and you can repay beyond the minimum.	The limit may be reviewed or repayable on demand. Only the outstanding balance earns interest, but it earns it until the balance is cleared.
Secured line of credit	You own a home and need a larger limit, and you accept that the property stands behind the debt.	At federally regulated lenders, a home equity line of credit is generally limited to 65% of appraised property value, with total secured lending usually capped at 80%.
Installment loan	You know the exact amount and want a fixed schedule that ends on a set date.	You pay interest on the full amount from the start, including money you may not end up needing.
Credit card	You want a small revolving buffer with fast access for everyday spending.	Pricing, annual fees and cash-advance treatment differ from a line of credit. Compare total cost of borrowing, not the headline rate alone.
Payday loan	Rarely a fit for anything but a genuinely short gap, because the cost structure is built for very short terms.	A payday loan is generally up to $1,500 for a term of 62 days or less. Where a province operates a licensed payday lending regime, the federal Payday Lending Regulations (SOR/2024-114) cap the cost of borrowing at $14 per $100 advanced. Some provinces set a cap lower than $14 per $100, and the lower cap applies. Quebec does not license payday lending, which effectively prohibits the model there.

Before you sign

1. Read the repayment clause and confirm whether the limit is repayable on demand, whether it is reviewed, and on what notice.
2. Ask for the total cost of borrowing in writing, covering interest, every fee and creditor insurance, and confirm whether insurance is optional.
3. Check whether the rate is variable, whether the lender can change it, and what triggers a change.
4. Request your free credit report from Equifax Canada and TransUnion Canada so you can see what a lender will see before you apply.
5. Confirm the lender is licensed in your province or territory, and know where a complaint goes: the Financial Consumer Agency of Canada for federally regulated institutions, and your provincial regulator for most others.

Whether a particular line of credit is right for you depends on your income, your existing debts and your own plans for the balance. This page explains how the product works; it does not recommend one, and loanmoose.ca does not make credit decisions.