Line of Credit
A line of credit is a borrowing option that lets you access money up to a set limit, repay what you use, and borrow again as long as you stay within that limit. Many people compare a line of credit to a credit card because of this flexibility. However, a line of credit works differently from a traditional loan.
This page explains what a line of credit is, how it works in Canada, and what to consider before using one.
What Is a Line of Credit?
A line of credit is a form of revolving credit. Instead of receiving one lump sum, you are approved for a maximum amount called a credit limit. You can borrow any amount up to that limit and pay interest only on what you use.
Once you repay part or all of what you borrowed, that amount becomes available again.
How a Line of Credit Works
With a line of credit:
- You are approved for a set limit
- You choose how much to borrow
- Interest is charged on the amount used
- You make regular payments
- Borrowed funds become available again as you repay
Access methods and repayment rules vary by lender and province.
Common Types of Lines of Credit
Personal Line of Credit
A personal line of credit is usually unsecured, meaning no collateral is required. Interest rates may be higher than secured options.
Home Equity Line of Credit (HELOC)
A HELOC uses home equity as collateral. Because an asset is involved, interest rates are often lower, but there is added risk if payments are missed.
Not everyone qualifies for every type of line of credit.
Line of Credit vs. Loan
A line of credit and a traditional loan are different.
Line of credit:
- Flexible borrowing
- Interest is charged only on what you use
- Funds can be reused
Loan:
- One-time lump sum
- Fixed repayment schedule
- No reuse of funds
Understanding the difference can help you choose the right option.
Interest and Payments on a Line of Credit
Interest on a line of credit is usually calculated daily based on the balance owed. Most lenders require a minimum payment, which often covers interest and a small portion of the balance.
Paying more than the minimum can reduce interest costs over time.
When People Use a Line of Credit
People may use a line of credit for:
- Ongoing expenses
- Managing cash flow
- Covering short-term gaps
Because funds are easy to access, it is important to track balances carefully.
Risks of Using a Line of Credit
A line of credit can be useful, but it also carries risks:
- Balances can grow quickly
- Minimum payments may feel manageable while debt increases
- Secured lines of credit put assets at risk
Responsible use and regular review are important.
Line of Credit vs. Payday Loans
Speedy Cash focuses on payday loans, which are short-term loans designed to be repaid on your next payday.
Key differences include:
- Payday loans have fixed repayment timing
- Lines of credit offer ongoing access
- Payday loan rules and fees are set by provincial law
Payday loans are usually repaid in a lump sum, except in Alberta, where installment repayment is required.
Provincial Availability to Know
Where Speedy Cash Operates:
- Physical and Online: Alberta, British Columbia, Nova Scotia, Saskatchewan
- Online loans only: Manitoba, New Brunswick, Newfoundland, Labrador, Ontario
- Not available: Quebec, Prince Edward Island (PEI), Yukon, Northwest Territories, Nunavut
Loan rules in Canada vary by province.
Questions to Ask Before Using a Line of Credit
Helpful questions include:
- What is the interest rate?
- How is interest calculated?
- What is the minimum payment?
- Is the line of credit secured or unsecured?
Clear answers help avoid surprises.
Line of Credit and Budgeting
A line of credit works best when paired with a clear budget. Knowing how much you can repay each month can help limit long-term costs.
Budgeting tools and spending reviews can support responsible use.
Summary
A line of credit is a flexible borrowing option that allows repeated access to funds up to a set limit. Interest is charged only on what you use, and repayment restores available credit. Types, interest rates, and eligibility vary by lender and province. Understanding the risks and terms helps support responsible use.