Personal Loan vs Line of Credit

Key Differences at a Glance

A personal loan provides a fixed lump sum that you repay in equal monthly installments over a set term. A line of credit gives you access to a revolving pool of funds that you can draw from as needed, repaying and reborrowing within your credit limit.

Think of a personal loan like buying a car—you get the full amount upfront and pay it off. A line of credit is more like a credit card—you have a limit and only pay interest on what you actually use.

How Personal Loans Work

When you take out a personal loan, you receive the full amount at once. Your repayment schedule is fixed from day one—you know exactly how much you will pay each month and when the loan will be fully repaid.

The fixed structure makes personal loans ideal for budgeting. There are no surprises, no variable rates, and a guaranteed debt-free date. However, you cannot reborrow once you have started repaying—if you need more money, you must apply for a new loan.

In Canada, personal loans through our network range from $300 to $5,000, though banks and credit unions may offer larger amounts. Rates are fixed, typically between 6% and 35% APR. They are available from major banks, credit unions, and online lenders.

How Lines of Credit Work

A line of credit (LOC) provides you with a maximum borrowing limit that you can draw from as needed. You only pay interest on the amount you have actually drawn, not the total limit. As you repay, the available credit replenishes for future use.

In Canada, unsecured personal lines of credit typically have variable interest rates tied to the prime rate, often prime + 2% to prime + 7%. As of 2026, this translates to roughly 7% to 12% for borrowers with good credit. HELOCs (home equity lines of credit) offer lower rates but require property ownership.

The flexibility of a LOC comes with a risk: because there is no forced repayment schedule, it is easy to remain in debt indefinitely by making only minimum payments. Disciplined borrowers thrive with this product; undisciplined borrowers may prefer the structure of a personal loan.

When to Choose a Personal Loan

A personal loan is the better choice in several common scenarios.

• You need a specific, known amount for a one-time expense
• You want predictable, fixed monthly payments
• You prefer a guaranteed debt-free date
• You are consolidating existing debts into one payment
• You want protection from rising interest rates (fixed vs. variable)
• You need the discipline of a structured repayment plan

When to Choose a Line of Credit

A line of credit is better suited for certain financial needs.

• You need ongoing access to funds over time (e.g., home renovation in stages)
• You are uncertain of the total amount you will need
• You want to borrow and repay flexibly without reapplying
• You have strong financial discipline to manage revolving credit
• You want to minimize interest by borrowing only when needed
• You have a strong credit profile (LOCs typically require higher scores)

Cost Comparison Example

Let us compare the cost of borrowing $3,000 through each option.

Key Insight

The LOC costs less in total interest, but only if you make consistent, substantial payments. If you pay only the minimum, the LOC debt could persist for years and ultimately cost more than the personal loan.

Eligibility: Which Is Easier to Get?

Personal loans are generally more accessible than lines of credit, especially for borrowers with fair or poor credit.

In Canada, unsecured lines of credit typically require a credit score of 650+ and a relationship with the lending institution. Personal loans, especially from online lenders, may accept scores as low as 500. For borrowers with imperfect credit, a personal loan is often the more realistic option.