{"id":601,"date":"2024-05-03T17:57:07","date_gmt":"2024-05-03T17:57:07","guid":{"rendered":"https:\/\/www.fatcatloans.ca\/blog\/?p=601"},"modified":"2026-08-27T12:31:08","modified_gmt":"2026-08-27T12:31:08","slug":"personal-loan-or-line-of-credit","status":"publish","type":"post","link":"https:\/\/www.fatcatloans.ca\/blog\/personal-loan-or-line-of-credit\/","title":{"rendered":"Personal Loan vs Line of Credit in Canada: Which Is Best?"},"content":{"rendered":"

Personal Loan vs Line of Credit: Which Should You Choose?<\/h2>\n

Last Updated:<\/strong>\u00a0 August 2026<\/em><\/p>\n

Personal loans and lines of credit both provide access to borrowed money, but they work in very different ways. A personal loan usually provides a lump sum that you repay over an agreed term, while a line of credit lets you borrow, repay and reuse funds up to an approved limit.<\/p>\n

The better option depends on why you’re borrowing, how much flexibility you need and whether you prefer structured repayments or ongoing access to credit.<\/p>\n

This guide compares personal loans<\/a> and lines of credit<\/a> in Canada<\/strong>, including how interest works, repayment differences, credit-score considerations and when each option may make more sense.<\/p>\n

Quick Answer: Personal Loan or Line of Credit?<\/strong><\/p>\n

A personal loan<\/strong> may be better when you need a set amount for a one-time expense and want structured repayments over an agreed period. This can work well for debt consolidation, a major purchase or a planned expense.<\/p>\n

A line of credit<\/strong> may be better when costs are ongoing or unpredictable and you want the flexibility to borrow, repay and reuse available credit.<\/p>\n

The main difference is:<\/p>\n

Personal loan = borrow once and repay on a schedule.<\/strong><\/p>\n

Line of credit = borrow as needed and reuse available credit.<\/strong><\/p>\n

Cost matters too. Personal loans may have fixed or variable rates<\/strong>, while lines of credit usually have variable rates<\/strong>. Your actual rate and terms depend on the lender and your financial profile.<\/p>\n

Personal Loan vs Line of Credit at a Glance<\/h2>\n
\n
\n\n\n\n\n\n\n\n\n\n\n\n\n\n
Feature<\/th>\nPersonal Loan<\/th>\nLine of Credit<\/th>\n<\/tr>\n<\/thead>\n
How you borrow<\/td>\nLump sum<\/td>\nAs needed<\/td>\n<\/tr>\n
Credit type<\/td>\nInstalment credit<\/td>\nRevolving credit<\/td>\n<\/tr>\n
Access to funds<\/td>\nUsually once<\/td>\nOngoing up to your limit<\/td>\n<\/tr>\n
Interest rate<\/td>\nFixed or variable<\/td>\nUsually variable<\/td>\n<\/tr>\n
Interest charged<\/td>\nOn the loan balance<\/td>\nOn the amount borrowed<\/td>\n<\/tr>\n
Repayment<\/td>\nScheduled instalments<\/td>\nMinimum payments<\/td>\n<\/tr>\n
Repayment period<\/td>\nSet term<\/td>\nUsually no fixed payoff date<\/td>\n<\/tr>\n
Reuse repaid funds<\/td>\nNo<\/td>\nYes<\/td>\n<\/tr>\n
Best suited to<\/td>\nOne-time expenses<\/td>\nOngoing or unpredictable costs<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/div>\n<\/div>\n

According to the Financial Consumer Agency of Canada (FCAC)<\/strong><\/a>, a line of credit allows you to borrow money up to a preset limit, with interest charged on the amount you actually borrow.<\/p>\n

How Do Personal Loans Work?<\/h2>\n

Personal loans<\/a><\/strong> provide a lump sum that can be used for various purposes. Lenders may consider factors such as your credit history, income and existing debts when deciding whether to approve an application and what terms to offer.<\/p>\n

Personal loans are generally repaid through regular instalments over an agreed term. FCAC<\/strong><\/a> says personal loan terms commonly range from 6 to 60 months<\/strong>, although terms vary by lender and product. They are commonly used for purposes such as debt consolidation<\/a><\/strong>, home improvement projects, or unexpected expenses<\/a><\/strong>.<\/span><\/p>\n

Personal loans may be secured or unsecured<\/a><\/strong>. A secured loan uses an asset as collateral, while an unsecured loan does not.<\/p>\n

If you’re new to personal loans, our Personal Loans Canada guide<\/a><\/strong> explains how they work in more detail, including eligibility, borrowing costs and what to compare before choosing an offer.<\/p>\n

How Does a Line of Credit Work?<\/h2>\n

A line of credit is a form of revolving credit<\/strong> that gives you access to funds up to an approved limit.<\/p>\n

For example, if you have a $10,000 line of credit but only borrow $2,000, you generally pay interest on the $2,000 you’ve used rather than the full $10,000 limit.<\/p>\n

As you repay the balance, that credit becomes available to use again. This can make a line of credit useful for ongoing or unpredictable expenses where you don’t know exactly how much you’ll need upfront.<\/p>\n

Lines of credit can be secured or unsecured. Interest rates are usually variable, which means your borrowing cost can rise or fall over time.<\/p>\n

FCAC<\/strong><\/a> also warns that some minimum payments may cover only the monthly interest. If you continually pay only the interest, you won’t reduce the original amount borrowed<\/strong>.<\/p>\n

\"Personal<\/p>\n

Comparing Interest Rates and Borrowing Costs<\/h2>\n

Interest rates can work differently depending on the product.<\/p>\n

Personal loans<\/strong> may have fixed or variable interest rates. With a fixed rate, the rate remains the same during the agreed period, which can make repayments easier to budget for. A variable rate may change over time.<\/p>\n

Lines of credit<\/strong> usually have variable rates. A lender may quote the rate in relation to its prime rate, such as prime + 3%<\/strong>. If the applicable rate rises, the interest charged on your outstanding balance can increase.<\/p>\n

The Bank of Canada<\/a><\/strong> publishes current Canadian interest-rate data, which can help borrowers understand the wider rate environment.<\/p>\n

With a line of credit, you generally pay interest only on the amount you’ve actually borrowed.<\/p>\n

However, don’t compare products using the interest rate alone. Consider:<\/p>\n