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Which type of credit you choose will depend on what you need the money for and how much you’re looking for. If you’re looking for a large sum you can’t pay back immediately, then an unsecured personal line of credit or loan is a good option.
If you’re looking for a more flexible way to borrow money, then a line of credit is the way to go. That said, you do have to do some research and find the right line of credit for you. There are plenty of great options available out there—some of them with better interest rates than others.
Lines of Credit and How They Work
Lines of credit are a great way to access funds in a flexible way. The easiest way to describe a line of credit is that it’s almost like a combination of a personal loan and a credit card. It’s a form of revolving credit that you can access as long as you have a room available. You have access to potentially lower interest rates like you would with a personal loan, but you can use the line of credit repeatedly.
With lines of credit, while you have a credit limit, using only 30% to 35% of it is ideal. While you can use more, this can have a negative impact on your credit score. The lower you’re able to keep the balance, the better off you are.
Minimum Payments on Lines of Credit
One upside to a line of credit is that the minimum payments are extremely low and often consist of just the interest payments. Because of that, though, you aren’t actually paying down the balance at all. You are, however, able to make lump sum principal payments whenever you like directly from your bank account.
To figure out how much you owe, you should be receiving an updated balance statement every month. You should also be able to check the balance through your online banking platform.
Different Kinds of Lines of Credit
Essentially, there are three different types of lines of credit: Secured Lines of Credit, Unsecured Lines of Credit and Student Lines of Credit.
Secured LOCs
Secured lines of credit are when you have an asset tied to the loan, such as a car or a house. This means if you default on the line of credit payments, your asset can be seized. The most common example of this is a HELOC, also known as a Home Equity Line of Credit. This is when you borrow from the equity in your home in the form of a line of credit. These forms of lines of credit have lower interest rates. However, they are riskier because an asset is attached. That said, because there is an asset attached, they’re the easiest form of line of credit to get approved for.
Unsecured LOCs
Unsecured lines of credit have slightly higher interest rates, but you don’t risk losing an asset if you default on the payments. That said, they are harder to get, and you do need to have a decent interest rate to get approval, especially if you’re looking for a large sum of money.
Student LOCs
Student lines of credit have lower interest rates than a traditional line of credit. They’re meant for students taking post-secondary education to help with tuition and other related expenses. With these types of lines of credit, you’re only required to pay interest on the outstanding balance until you’ve completed school. Once you’ve completed school, there’s a 6-12 month grace period before you need to start paying interest and the principal.
Interest Rates on Lines of Credit in Canada
Since prime rates have been steadily increasing in 2023, line of credit interest rates have risen a bit. The average rate sits between 8%-10%. Those with secured personal lines of credit can get lower rates of 6%-7%, and unsecured lines of credit are usually closer to 10%. That said, rates have started decreasing in 2024 so these rates could start to drop below 8%.
Best Bank Line of Credits 2024
If you’ve decided to get a line of credit, you don’t have to get it with your primary financial institution unless it’s the best rate. There are plenty of other financial institutions that offer lines of credit with great rates. Here are some of Canada’s major banks and their line of credit options.
Tangerine
Tangerine is an online financial institution that offers some great rates on lines of credit. Like other lines of credit, the interest rates are variable, so it’s difficult to determine what the exact rate will be throughout the term. That said, Tangerine's prime rate is 6.7%, and with their unsecured line of credit advertised as 2% plus prime, the starting rate right now would be 8.70%. The rates for a HELOC as of now are 7.20%, but they will fluctuate.
As a bonus, there are no annual fees with Tangerine accounts, so all you pay is the interest and the principal. Due to the fact that Tangerine is strictly online, you don’t have to go into a branch to get a line of credit. You can apply online and start using the funds as soon as the approval goes through. They offer flexible repayment options and 24/7 access to the funds.
Royal Bank of Canada
RBC is another financial institution that offers competitive rates on lines of credit. Some key features that they offer with their Royal Credit Line are:
- No annual fees
- Low interest rates
- Flexible repayment options
- The ability to close your account and reduce limits online
- Credit alerts when your available limit hits $100
- Loan Insurance: Life, Disability or Critical Illness
RBC also offers secured LOCs. With their secured Home Equity LOCs, the minimum credit limit available is $5,000, with maximum amounts as high as 65% of the value of your home minus what is still owed. The minimum limit on unsecured LOCs is also $5,000. The rate you’re approved for depends on your financial situation, credit score and the current prime rate, which is 6.70%.
On their website is also a loan calculator. You just enter the total amount and monthly interest rate, and you’ll be given an estimated monthly payment amount.
TD Canada Trust
TD Canada Trust offers a variety of LOC options, including:
- Personal lines of credit
- Student lines of credit
- Investment-secured lines of credit
- TD Home Equity Flexline
Which LOC you get approved for will depend on your financial situation, credit score, and the reason you would like an LOC. The current prime rate with TD is 6.70%, so the rates of each LOC will fluctuate with prime. However, TD also offers a fixed rate option that you can choose to go with instead.
You can apply online, in person or over the phone with TD. The approval amounts are based on your individual situation, but they offer limits ranging from $5,000 to $50,000.
You can access your TD LOC through the app or online banking. However, your current interest rate will only show when you use online banking. You can also set up your LOC so you can withdraw funds directly from your TD access card.
Scotiabank
While Scotiabank LOCs are similar to those at other banks or credit unions, one unique feature they offer is a Visa access card for your line of credit. This allows you to withdraw money without having to transfer funds. Other features included are:
- No annual fees
- Credit limits from $5,000 to $75,000
- Flexible repayment options
- Access on the app
- Optional line of credit insurance and critical illness insurance
- 25% rental cars at some Avis or Budget locations with the access card
In order to apply for a personal line of credit, you’ll need a few different documents. You’ll need at least one of the following:
- Passport
- Driver’s License
- Valid government-issued ID
You’re also going to need a letter of employment and pay stubs. If you’re self-employed, then you’ll need to supply proof, which could be a notice of assessment or a current assessment on your MY ACCOUNT.
The different lines of credit that Scotiabank offers are:
- ScotiaLine Personal Line of Credit
- ScotiaLine Personal Line of Credit (Real Estate Secured)
- ScotiaLine Personal Line of Credit for Students
- Scotia RSP Catch-Up Line of Credit
The current prime rate on Scotiabank lines of credit is 6.70%.
Bank of Montreal
BMO also offers some good lines of credit at great rates. There are a few to choose from, and you can get a preferred rate when you secure an asset for your LOC. Here are the different LOC options available.
- Personal LOC:
- Minimum $2,000 credit limit
- Minimum monthly payments of $50 or 2% of the balance (whichever is greater)
- Apply online if you bank with BMO
- Homeowner’s LOC
- Minimum $5,000 credit limit
- Interest-only payments required
- Online access with BMO chequing account
- Homeowners’s Deadline
- Minimum $5,000 credit limit
- Access up to 80% of your home's value
- Access to more as you pay your mortgage
If you choose to apply online, you can get approved for up to $25,000 for a personal line of credit. For more money or a different LOC, you’ll have to book an appointment and go into the branch.
All BMO lines of credit have variable interest rates. The interest is calculated daily and posted monthly as your minimum payment. The current prime rate for BMO LOCs is 6.70%. What your internet rate will be will depend on your credit score, credit history, financial situation and the type or line of credit you get.
Canadian Imperial Bank of Commerce
CIBC offers two different types of lines of credit. These are the:
- CIBC Personal Line of Credit
- CIBC Home Power Plan Line of Credit
Both of these have variable interest rates based on the CIBC prime rate, which is currently 7.20% until December 8, 2024. They both have open-ended terms, but the minimum credit limit is different for each. The minimum on the personal line of credit is $5,000, and the home power plan has a minimum credit limit of $10,000. The main difference between these two is that security is required for the home power plan, while it’s optional for the personal line of credit.
You can apply with CIBC online, in person, or over the phone.
Mogo
With Mogo, you can get something called the Mogomini line of credit. Essentially, this is a small line of credit that ranges from $500 to $3,500. However, the interest rate on this line of credit is 47.42%. Plus, in order to get approved, you need a minimum credit score of 600 and a minimum annual income of $35,000.on or over the phone.
Credit Union Lines of Credit 2024
Credit unions in Canada offer many different credit products that are similar to those of banks. Let’s see how the lines of credit compare.
Meridian
One of the many credit products that Meridian Credit Union offers is lines of credit. They also have a few different options, including:
- Personal Lines of Credit
- Home Equity Lines of Credit
Their personal lines of credit offer flexible payments and variable interest rates that are based on the current prime rate. Meridian HELOCs start at 7.20% and are available as long as you own and have equity in your home. They also offer Meridian Flex Line Mortgages that combine your mortgage and line of credit.
First Ontario
First Ontario Credit Union offers 3 different kinds of lines of credit:
- Personal Lines of Credit
- Student Lines of Credit
- Home Equity Lines of Credit
With their personal lines of credit, you have the choice between secured and unsecured loans. The interest rates on secured lines start at 8.74%, and the interest rates on unsecured lines start at just 9.74%. For student lines of credit, the interest rates start at just 7.75%, and HELOCs start at just 6.60%, which is lower than many other credit unions and banks.
Vancity
Vancity Credit Union also has some options for lines of credit. The rate you’ll get depends on your entire credit limit as well as your credit score. If you’re looking for an LOC that offers over $5,000, then you’re looking at a rate of Vancity Prime plus Increment. If you’re looking for a line of credit loan under $5,000, then the interest rate is 17.75%.
Credit Score Needed to Get a Line of Credit
Getting a line of credit is more difficult than a credit card or even a personal loan. Why is this? Well, this is mainly because lines of credit aren’t used one time. You can continue using them for as long as you like. They also have comparable interest rates to personal loans.
A good credit score is recommended to get a line of credit. Some credit lenders will give you an LOC with scores around 660. However, the ideal score for approval is 720 or higher. Some private lenders will give lines of credit to those with bad credit, but those do have higher rates.
Amounts You Could Get With A Line of Credit
Credit limits on lines of credit in Canada vary depending on the financial institution. The minimum credit limit for most lines of credit is $5,000, but they can go as low as $1,000. The maximum credit limit is usually around $50,000, but some financial institutions will go up to $100,000 or higher.
Difference Between Lines of Credit and Credit Cards
Lines of credit and credit cards are similar in the fact that they are both forms of revolving credit and have pre-set credit limits. That said, there are quite a few differences between them. The first is interest rates. Most lines of credit have variable interest rates unlike loan which usually have fixed interest rates. The line of credit rates are also much lower, with averages of around 8% to 10%. Credit card interest rates in Canada are around 19.99%.
With both credit cards and LOCs, the interest is calculated daily and added to your statement every month. Because the interest rates on LOCs are lower, though, the monthly payments are lower, and they tend to be easier to pay off. Many people actually use lines of credit to pay off their credit card debt.
Another perk to lines of credit is that they have higher credit limits than credit credits. While there are higher-limit credit cards, they often have a lot of restrictions and can be more difficult to get approval for since they’re mostly based on your monthly household income.
Not all lines of credit are often attached to debit or credit cards. You have to transfer money from the credit account to your chequing account before you can use it. You can also get cheques for your LOC account. Credit cards are more accessible and easy to use.
What Lines of Credits Can Be Used For
Most financial institutions have no restrictions on what their lines of credit can be used for. That said, some of the most popular reasons people choose to get a LOC are:
- Renovations
- Rainy Day Funds
- Vacations
- Vehicle purchases
- Furniture
- Ongoing projects
- Tuition
No matter what you use the line of credit for, though, the principal stays the same. Your minimum required payment is the interest, and you can make the payments on the principal whenever you like.
How Long Approval Takes on Lines of Credit
With most financial institutions, you can apply for a line of credit online in just a few minutes. Approval on the average line of credit, however, takes a bit longer. Most lenders can take anywhere from 1 to 2 weeks to get you access to your funds. Online lenders, however, can get you access to your funds as soon as the same day.
Final Thoughts
One of the most important factors in getting a line of credit is getting a good interest rate. The higher your interest rate is, the more difficult the credit line is to pay off. That said, lines of credit are an integral part of improving and maintaining your credit score and building up your credit report. The best way to do this is by keeping your credit utilization low, just as you would with a credit card.
Both banks and credit unions in Canada offer lines of credit with competitive interest rates. Before you decide which is the best for you, you should consider what you’re using the line of credit for and how much you intend to use. While you don’t have to use your primary financial institution for the LOC, many banks will have special offers for their current customers, so that’s something to consider as well. No matter what you choose to do, though, there are lots of options out for you to consider.s out for you to consider.
