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Key Takeaways

  • A line of credit is revolving credit: Borrow up to a set limit, repay what you’ve used, and access those funds again without reapplying.
  • There are two main types of lines of credit: secured and unsecured. A secured line is backed by assets like a house or investments — while an unsecured line isn’t backed by anything.
  • Only pay interest on what you use: Interest applies to the amount you borrow, not to your full amount available to you.
  • Interest rates are typically lower than other credit options: Borrowing on a line of credit generally costs less in interest than on a credit card.
  • Applying is straightforward: Speak with an RBC credit specialist by phone at 1-800-769-2511, book an appointment or visit a branch (opens in new window).

When money feels tight, a little flexibility can go a long way. A line of credit, with a lower competitive borrowing rates and flexible terms, can give you some breathing room. While wages have largely kept pace with rising prices in Canada, a recent RBC Economics report (opens in new window) notes that expenses have risen faster. So, many households are looking for a little extra flexibility in their budget. Here's how a line of credit could help you do just that.

What Is a Line of Credit?

A line of credit is a loan that lets you borrow up to a pre-set limit — you can use as much or as little of that amount as you need. You can draw funds as you need them, pay them back, and borrow them again — this is known as revolving credit.

It's a flexible borrowing option that gives you access to funds whenever you need them. You only pay interest on what you actually use, and when you carry a balance, your minimum monthly payment is often just the interest on the amount you owe.

How Does a Line of Credit Work?

  • Complete your application. Your lender will review your income, credit score, and existing debt. If you’re approved, they will set your credit limit and interest rate. Quebec clients will request their own credit limit based on their financial needs, and the lender will assess and approve the final amount.
  • Access your funds. Once your line of credit is open, you can easily access the funds through an ATM, cheque, online banking or at a branch.
  • Pay interest on what you borrow. Interest begins accruing from the day you withdraw funds. The rate is typically variable and tied to your lender’s prime rate, which in turn follows the Bank of Canada’s policy rate – so it rises and falls as that rate fluctuates.
  • Make minimum monthly payments. Your minimum payment will cover the interest on what you’ve borrowed, as well as any applicable premiums. You can make more than the minimum payment at any time.
  • Repay and reuse. As you pay down your balance, that credit becomes available again so there is no need to reapply.

When a line of credit may be useful?

A line of credit is helpful because it gives you access to funds when you need them, and there’s no cost to keeping it open if you don’t use it. When the cost of living is high, a line of credit can be a practical way to handle everyday financial demands. Here are a few situations where a line of credit can be useful:

  • To cover unexpected expenses: Many Canadians worry (opens in new window) that an unexpected emergency – like a surprise home repair or car breakdown – could derail their finances, as emergency savings are hard to build. A line of credit gives you immediate access to funds without needing to apply for new credit – or rely on a credit card, which generally comes with higher interest rates.
  • To bridge the gap of irregular income: If you're self-employed or your income varies, you can draw from your line of credit during slower months to help manage cash flow.
  • To consolidate debt: You can use a lower-rate line of credit to pay off high-interest credit card balances and save on interest costs.
  • To pay for home renovations: Renovation costs tend to roll in gradually, and a line of credit lets you withdraw only what you need, when you need it.
  • To make large purchases: If you need the flexibility to cover the cost of a large purchase – such as furniture or appliances – you can pay it down over time without committing to a set repayment schedule.

For example, say you have a $25,000 balance on your credit card with a 20.99% interest rate. Over a year, that balance would cost you $5,247.50 in interest.

However, if you transferred that balance to a line of credit at a 6.45% sample interest rate – RBC’s prime rate of 4.45% plus 2.00% – the interest over that year would be $1,612.50.

That’s $3,635 less in interest over the year – money that stays in your budget instead of going toward carrying a balance.

$3,635 Saved Over One Year

Royal Credit Line
sample promotional rate of 6.45% (Primelegal disclaimer 1 + 2.00%) 		Credit Cards
at a rate of 20.99%
Interest over one year
$1,612.50 		Interest over one year
$5,247.50

The above example is shown for illustration purposes only. The Royal Credit Line rate is based on the RBC Primelegal disclaimer 1 rate of 4.45% + 2.00%. Example is based on an annual interest cost for an outstanding balance of $25,000.

When a Line of Credit May Not be Ideal for You

While a line of credit is a flexible borrowing solution, it’s not for everyone. It may not be right for you if:

  • You prefer predictable payments and a fixed timeline to pay down debt
  • Variable rates make you uneasy, particularly in a rising interest rate environment
  • You might be tempted to overspend and prefer the discipline of a fixed rate loan with a set repayment schedule.

In these cases, a loan may be a better fit for you, explore RBC personal loans here.

How Does the Interest Rate Work on a Line of Credit?

The interest rate on a line of credit is usually variable, which means it can go up or down depending on market conditions. It is made up of two parts:

  • Prime rate: Set by your lender and influenced by the Bank of Canada's policy rate. This part of your rate may change over time.
  • Fixed rate: This is the additional rate you qualified for when you opened the line of credit. This part of the rate will stay the same.

For example, if the prime rate is 4.45% and your fixed rate is 2%, your total interest rate is 6.45%.

This fixed rate is influenced in part by your credit score – the higher your credit score, the lower your interest rate may be. Learn more about your credit score here, including what affects your score, how to improve it and the advantages of a strong score. including what affects your score, how to improve it and the advantages of a strong score.

Most lines of credit in Canada use a variable rate. Here’s how fixed and variable rates compare:

characteristic Fixed Rate Variable Rate
How the rate works Stays the same for your borrowing term Can rise or fall with the lender’s prime rate
What the rate is tied to It’s set when you borrow and is locked in for your term The lender’s prime rate, which moves with the Bank of Canada’s policy rate
Payment predictability Predictable – your payments don’t change Less predictable – payments can change as rates move
Commonly used for Some mortgages, loans, credit cards Some mortgages, most lines of credit
Suits you if You prefer certainty and a steady payment You’re comfortable with some fluctuation in exchange for flexibility

Secured Line of Credit vs. Unsecured Line of Credit

There are two main types of lines of credit: secured and unsecured.

A secured line of credit is backed by something you already own, like the equity in your home or your investments. Because this reduces the lender’s risk, you’re often offered a lower interest rate and a higher credit limit.

An unsecured line of credit, is not required to be backed by assets. The lender determines a suitable credit limit based on your credit history and financial standing.

Responsive Table - Secured Line of Credit vs. Unsecured Line of Credit
Feature Secured Line of Credit Unsecured Line of Credit
Collateral required? Yes – backed by an asset such as your home or investments No — you don't need to put up an asset as collateral.
Typical interest rate Generally lower, because the lender has collateral to fall back on Generally higher, since there is no collateral
Credit limit Can be higher and tied to the value of your collateral Typically, lower and based on your income and credit profile
Approval requirements Proof of identity and income, plus documentation of your collateral Proof of identity and income, with more weight on your credit history
Common examples Home Equity Line of Credit (HELOC); investment-secured line of credit Personal line of credit; student line of credit
Designed for Large borrowing needs at a lower rate when you have an asset to use as collateral Smaller, flexible borrowing needs when you don’t want to put up an asset

Line of Credit vs. Personal Loan vs. Credit Card: What’s the Difference?

Personal loans, lines of credit, and credit cards are all ways to borrow money, but they work differently. Understanding how they differ can help you choose the one that fits your needs.

A credit card, for instance, is typically used for making purchases in-store or online, given its convenience and wide acceptance.

A personal loan works well when borrowing for a one-time, fixed expense such as a car or tuition, offering a structured repayment schedule with a clear end date.

A line of credit is designed for when you have an open borrowing need – when you’re not sure how much you’ll need to borrow or for how long. You can borrow, repay, and borrow again without having to reapply for credit.

Responsive Table - Line of Credit vs. Personal Loan vs. Credit Card
Feature Line of Credit Personal Loan Credit Card
Structure Revolving credit; you can borrow against your credit limit and as you repay your balance, it becomes available for use again Non-revolving credit; you get the full loan amount and must repay in instalments until you’ve paid off both the principal and interest Revolving credit; borrow against your credit limit and use it again as you repay your balance
Interest rate Variable interest
Typically, lower than most loans and credit cards 		Fixed or variable interest
Lower than credit cards 		Fixed or variable interest
Typically, the highest of the three
How you receive funds Draw from your line of credit as you need to – at an ATM, branch, cheque or through online transfer Receive all funds once your loan is approved You pay with the card rather than receiving funds directly – unless you do a cash advance, which usually costs more
Repayment Pay down your balance at any time, but a minimum monthly payment is needed if you carry a balance Repay according to a fixed payment schedule. Your payments include both principal and interest Make at least the minimum payment by the due date to keep your account in good standing. Pay your balance in full to avoid interest charges
Interest charged on Money borrowed, once you borrow The full amount of the loan, once the loan is open The outstanding balance after the grace period
Designed for Ongoing borrowing needs A large, fixed expense Small or large everyday purchases, in-store or online
Rewards /cashback Not typically earned Not typically earned Many cards offer rewards or cash back when you pay with your card
Reapplication required No Yes No

If you’re carrying a balance or converting high-interest debt, a line of credit tends to be the cost-effective choice. Learn more about personal loans and lines of credit.

How to Apply for a Line of Credit

Applying for a line of credit is straightforward process. Here are the documents you’ll need and what you can expect.

  • Step 1: Have your paperwork ready: You’ll need to provide proof of identity, proof of income, details of existing debt and, if applying for a secured line of credit, documentation about your assets. You must also be a Canadian resident to be eligible.
  • Step 2: Choose how you want to apply: You can apply by calling RBC at 1-800-769-2511, book an appointment or visit your nearest RBC branch (opens in new window).
  • Step 3: Review your offer: If you’re approved, you’ll receive your account details with your credit limit and interest rate. Review the terms carefully before accepting. To get a sense of what your payments might look like first, you can also try out our line of credit payment calculator (opens in new window).

Other Types of Lines of Credit in Canada

There are other types of lines of credit in Canada for specialized purposes – for instance, if you own a home, are a student, or a business owner.

Home Equity Line of Credit (HELOC)

A home equity line of credit, also known as a HELOC, is secured against the equity you have in your home. HELOCs can offer a substantial credit limit at a relatively low interest rate and can be used for larger expenses such as setting up a business, purchasing a car, renovating a home, or putting a down payment on a second home. Lenders, generally, require you to hold a meaningful share of equity in your home before you qualify, so it can take time to build up to one.

Student Line of Credit

Student lines of credit are competitive interest rate options specifically designed for Canadian citizens and permanent residents pursuing post-secondary education.

Unlike other RBC lines of credit, where you can repay your balance at any time, the student line of credit gives you a 24-month grace period after graduation before you need to begin repaying the principal. While you’re in school, you only pay interest on the portion of your credit limit you’ve used. Learn more about how student loans work in Canada.

Business Line of Credit or Business Operating Line

A business line of credit, also known as a business operating line, can help entrepreneurs and business owners manage or supplement their working capital and handle expenses that rise and fall through the year. It also gives them access to extra funds for expansions, asset purchases, and other costs.

Applying for a Line of Credit as a Newcomer to Canada

Eligible newcomers to Canada can apply for a line of credit or get pre-approved by a bank if they’ve built a good credit history or have an asset that can serve as collateral for a secured line of credit (such as a home).

As with any applicant, your lender will run a credit check and ask you for proof of identity and income (as covered in the steps above). Remember, you’ll need to be a resident of Canada – and a Canadian citizen or permanent resident – to be eligible.

Here’s what makes a line of credit a valuable option for eligible newcomers:

  • Gives you access to credit when needed: Funds are there when an unexpected cost comes up, and you only pay interest on what you use.
  • Lower interest rates: Interest rates on lines of credit are generally lower than those on credit cards, so a line of credit can be a cheaper way to borrow.
  • Revolving credit limit: A line of credit allows flexibility in using, repaying, and reusing the available credit limit without the need to reapply.
  • Flexible repayment schedule: You can repay your balance at any time. However, you must still pay off your interest monthly (student lines of credit work a little differently).
  • Convenience and ease of use: You can access funds from a line of credit through ATM cash withdrawals, cheques, or online transfers.
  • No annual fee: Most lines of credit don’t have an annual fee, and the only cost is interest on the credit balance you use.
  • Enhances your credit portfolio: A diverse mix of credit products can help improve your credit score, provided you make payments regularly.

Mistakes to Avoid with a Line of Credit

A line of credit can be useful in many ways, helping to finance big purchases and cover emergencies. But to avoid common pitfalls, here are some habits to keep in mind:

  • Borrow what you can comfortably repay. Taking on too much can put your credit at risk, since you could end up carrying a high balance for a long time. When you withdraw from your line of credit, it is always a good idea to calculate your monthly cash flow and have a repayment plan in mind.
  • Stay on track with your payments. Missed payments can impact your credit score and cause your balance to balloon because of compounding interest. Setting up automatic payments is an easy way to make sure your minimum payment is covered on time, every time.
  • Leave room in your available credit. When you borrow a high percentage of your credit limit, it can indicate to lenders that you’re a high-risk borrower. A good rule of thumb is to keep your balance under 30 per cent of your available credit, which helps protect your credit score.

Tips When Applying for a Line of Credit

A little preparation can improve your chances of getting approved for a line of credit and help you understand the rate and limit you receive. Here’s what lenders look at and how to get ready.

What Lenders Typically Review

When you apply for a line of credit, a lender is trying to assess how comfortably you can take on and repay credit. A few things tend to carry the most weight:

  • Your income, which shows your capacity to make payments
  • Your credit score, which reflects how you’ve handled credit in the past
  • Any existing debt, which shows how much of your income is already committed
  • Your credit history, which gives a fuller picture of your track record over time.

How to Check Your Credit Score Before Applying

It’s worth knowing your credit score before you apply, so there are no surprises.

You can check your credit score at either of Canada’s two main credit bureaus – Equifax or TransUnion. RBC Online Banking customers can also access a free credit report.

Tips to Improve Your Approval Chances

A few habits can put you in a stronger position before you apply:

  • Pay your bills on time – since payment history is one of the biggest factors in your credit score
  • Pay down existing balances where you can – so less of your income is already committed to debt
  • Check your credit report for errors – and have them corrected before you apply
  • Have your documents ready – including proof of income and identity, so the process goes smoothly

Making the Most of Your Line of Credit

Your line of credit can be a flexible way to cover life’s planned and unplanned expenses. Here are seven ways to get the most out of it.

  • Only borrow what you need. It can be tempting to use your full limit, but borrowing less means you pay less interest and keep more credit available for an emergency. A line of credit is meant to be used as a tool you reach for deliberately, not a top-up for everyday spending.
  • Make more than the minimum payment. Your minimum payment often covers just the interest, which doesn’t reduce the balance. Putting even a bit more toward the principal each month will bring down the balance and lower the total interest you pay.
  • Use it to consolidate high-interest debt. If you’re carrying balances on one or more credit cards, moving them to a lower-rate line of credit can reduce your interest costs and leave you with a single payment to manage instead of several.
  • Avoid using it for impulse purchases. Easy access to funds is part of the appeal of a line of credit, but it also makes it easy to spend on things you might not have planned for. Keeping the line of credit for genuine needs helps you avoid carrying a balance you didn’t intend to.
  • Monitor your utilization. Utilization is how much of your available credit you’re using. Keeping it on the lower side is good for your credit score and gives you room to borrow if something unexpected comes up.
  • Set up automatic payments. Automating at least your minimum payment is a simple way to avoid a missed payment, which can hurt your credit score and add interest. You can always pay more on top of the automatic amount when your budget allows.
  • Have a repayment plan. Before you draw on your line of credit, it helps to know how you’ll pay it back. Building a repayment amount into your monthly budget keeps the balance moving down rather than lingering indefinitely. The line of credit payment calculator can help you estimate what your payments might look like.

FAQs About Lines of Credit in Canada

  • Does a line of credit affect my credit score?

    Yes. Like any credit product, a line of credit can affect your credit score either positively or negatively. The two major credit bureaus in Canada, Equifax and TransUnion, track how you use it.

    A few things affect your score: your payment history, how much of your available credit you use, the length of your credit history and how often you apply for new credit. It’s worth keeping an eye on your score and checking your credit score from time to time.

  • How much can I borrow with a line of credit?

    It depends on your situation. When applying for an unsecured line of credit, lenders set your limit based on your income, existing debt, and credit history. For a secured line of credit, the value of your collateral (such as the equity in your home) also plays a role, which is why secured limits tend to be higher.

  • How do I repay a line of credit?

    You have several options. You repay a line of credit by making at least the minimum payment each month, which usually covers the interest on what you’ve borrowed. You can pay more than the minimum, or pay off the full balance, at any time. Paying down the principal (not just the interest) is what brings down your balance over time.

    With RBC, you can make payments through:

    • Online Banking or the RBC Mobile app
    • Automatic transfers from your chequing account
    • Fund transfers from another account
    • An RBC branch

  • Do I need a line of credit if I have a credit card?

    A line of credit and a credit card serve different purposes. A credit card is convenient for everyday purchases, while a line of credit usually carries a lower interest rate, which makes it better suited to larger or longer-term borrowing. Many people use both: the card for day-to-day spending and the line of credit for bigger expenses or to carry a balance at a lower cost.

  • Can I use a line of credit to pay off my credit card debts?

    Yes – and doing so can save you money. Because line-of-credit interest rates are typically lower than credit card rates, moving a credit card balance to a line of credit can reduce the interest you pay and make your payments easier to manage. Just keep in mind that transferring a balance can affect your credit score, and the savings only hold if you avoid running the card balance back up.

References

  • RBC Economics, Beyond the Forecast: Six themes for Canada’s Economy in 2026 (www.rbc.com/en/economics)
  • Financial Consumer Agency of Canada, Loans and Lines of credit (www.canada.ca)

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This article is intended as general information only and is not to be relied upon as constituting legal, financial or other professional advice. A professional advisor should be consulted regarding your specific situation. Information presented is believed to be factual and up to date, but we do not guarantee its accuracy, and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the authors as of the date of publication and are subject to change. No endorsement of any third parties or their advice, opinions, information, products or services is expressly given or implied by Royal Bank of Canada or any of its affiliates.