Line of Credit vs Personal Loan in Canada: Which One Fits Your Situation?

By Jordan Ellis · Published August 20, 2026 · Reviewed September 14, 2026

Quick Answer

A personal loan gives you a lump sum at a fixed rate with forced repayment — typically 8–12% at banks — and an end date. A line of credit is revolving, variable-rate (prime + 1–4%), interest-only on what you draw, and never forces you to repay principal. Loans win for one-time expenses and discipline; LOCs win for ongoing, unpredictable access — and lose badly for anyone who treats available credit as income.

Same bank, same credit score, two very different products. Picking the wrong one costs either money (loan when you needed flexibility) or years (LOC when you needed an end date).

The structural difference

Personal loan: one lump sum, fixed rate, fixed payment, gone in 1–7 years. The structure forces repayment — every payment kills principal.

Line of credit: a standing limit you draw and repay freely. Minimum payment is interest-only. The balance can live forever if you let it — which is precisely the feature and precisely the trap, the same one as interest-only HELOCs.

The real cost comparison

$15,000 borrowed	Personal loan @ 9.5%, 4 yr	LOC @ 7.5%, interest-only
Monthly payment	~$377	~$94
Principal after 4 years	$0 (paid off)	$15,000 (untouched)
Interest paid	~$3,080	~$4,500 and counting

Price your exact loan offer on the personal loan calculator — then ask whether you’d actually make voluntary principal payments on the LOC. Honest answers only.

Which one, by situation

One-time expense with a known amount (car, dental, consolidation): personal loan — the fixed payoff date is the point
Renovations with rolling invoices: LOC — draw as contractors bill, pay interest only on what’s outstanding
Emergency buffer you hope never to use: LOC undrawn costs nothing, but don’t make it your only buffer — limits can be cut when you need them most
Debt consolidation: personal loan, almost always. The LOC leaves the door open behind you

The credit-score angle

LOCs count as revolving credit: high utilization stings your score while you carry it (utilization tactics here). Personal loans are instalment debt — they hurt less at the same balance and build history as they amortize. If a mortgage application is coming within a year, that difference matters.

The one-line answer

Borrowing a known amount once? Loan. Needing flexible, repeated access you can genuinely repay? Line of credit. Either way, compare the offer’s APR — not its payment — and run the total cost before you sign.

Official sources

Rules and dollar limits change. Confirm current amounts with the official pages below before you act · Last reviewed September 14, 2026.

Loans and lines of credit (Financial Consumer Agency of Canada)
Understanding debt (Financial Consumer Agency of Canada)

Frequently Asked Questions

Is a line of credit cheaper than a personal loan?

On rate, usually: unsecured LOCs run prime + 1–4% (roughly 5.5–8.5% with prime at 4.45% in September 2026) versus 8–12% for unsecured personal loans. But the LOC's rate floats with the Bank of Canada, and its interest-only structure means undisciplined borrowers pay for decades. Total cost depends on behaviour more than rate.

Does a line of credit hurt my credit score?

It's revolving credit like a credit card, so utilization counts against you — a maxed $20,000 LOC drags your score the same way a maxed card does. A personal loan is instalment debt: it hurts less at high utilization and helps your credit mix when paid on schedule.

Which is better for debt consolidation?

A personal loan, for most people: fixed rate, fixed payment, fixed payoff date — the debt actually dies. Consolidating onto a LOC leaves the credit available to re-spend, which is how balances consolidate twice. The exception is a HELOC, where the rate gap is big enough to justify strict self-imposed payments.

Can a lender reduce my line of credit limit?

Yes — LOCs are demand products. Lenders can cut limits or call the balance with notice, and they do tighten in credit downturns or if your score deteriorates. A personal loan's terms are locked for the term. Never rely on an undrawn LOC as your only emergency fund.

What rate should I expect on each in 2026?

Unsecured LOC: roughly prime + 1–4% (~5.5–8.5% with prime at 4.45%). Unsecured personal loan: ~8–12% at banks for strong credit, higher at alternative lenders. Secured versions (HELOC, secured loan) run lower — prime + 0.5% territory — but put your home on the line.