FinviloLine of credit vs personal loan in Canada: which fits your need?
A personal loan gives you a fixed amount with set payments until it is paid off. A line of credit lets you borrow, repay and borrow again up to a limit, paying interest only on what you use. Loans suit one-time costs; lines of credit suit uneven or ongoing costs if you have the discipline to pay them down.
Side-by-side
The trade-off is structure versus flexibility.
- Rate: lines of credit are usually variable and tied to the lender's prime rate; loans are often fixed.
- Payments: loans have a fixed schedule; many lines of credit only require interest each month.
- Access: a line of credit stays open after you repay; a loan closes.
- Security: secured lines backed by home equity (HELOCs) typically cost less than unsecured lines.
The interest-only trap
Paying only interest on a line of credit means the balance never falls. If you use one for a large purchase, set your own payment that clears it in a fixed number of months, and check the loan calculator for what that payment should be.
What lenders look at
Expect a credit check, proof of income and a review of your existing debts. Credit unions usually require membership, and many limit products to residents of their own province.
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Frequently asked questions
- Does an unused line of credit affect my credit score?
- An open line with a low balance can help your utilization ratio, but the credit check when you apply and a high balance can lower your score.
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Official sources
General information only, not personalized financial, tax or legal advice. Rules change; confirm current details with the source.