Loans
Personal Loan vs Line of Credit
How the two differ in rates, payments and flexibility, and which one suits a one-off cost or ongoing spending.
What is the difference?
A personal loan is a lump sum with fixed payments and an end date. A line of credit is a limit you draw from and repay as you like, paying interest only on what you use.
| Personal loan | Line of credit | |
|---|---|---|
| Money | Lump sum up front | Draw any time up to the limit |
| Rate | Fixed or variable | Usually variable (prime + margin) |
| Payments | Fixed, until paid off | Minimum can be interest only |
| End date | Yes | No |
| Reuse | No; reapply | Yes, as you repay |
Which costs less?
Lines of credit often have lower rates, but paying only the interest means the balance never goes down.
Example: a $10,000 balance at 10% costs about $83 a month in interest. Paying only that for 3 years costs about $3,000 and you still owe $10,000; a 3-year loan at the same rate costs about $1,620 in interest and is fully repaid.
When should I use each?
Use a loan for consolidation or a single purchase; use a line of credit for renovations paid in stages, irregular costs or an emergency buffer.
If you consolidate debt onto a line of credit, set up fixed payments that clear it, or the debt can linger.
Keep reading
LoansHow Personal Loans Work in CanadaWhat a personal loan is, how lenders set your rate, what it costs and what you need to apply, explained step by step.
MortgagesHow a Home Equity Line of Credit (HELOC) Works in CanadaA HELOC lets you borrow against your home up to 65% of its value, at a variable rate usually lower than other credit. How much you can borrow, the costs, and the risks of using your home as security.
LoansSecured vs Unsecured LoansWhat collateral means, how it changes the rate, and what you risk if you can’t pay.
Fees and borrowing costsBuy Now, Pay Later vs Credit Card in Canada: Which Costs Less?Affirm, Afterpay and other buy now, pay later plans at checkout compared with paying by credit card: what each costs on a $1,200 purchase, how pay-in-4 and monthly plans work, credit checks, and the risks.
Official sources and further reading
Terms vary by product. Confirm the provider’s current terms before acting. This guide does not predict approval, realized value or credit-score changes. How WalletReturn calculates value