Financial Consumer Agency of Canada

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4. > Lines of Credit

Lines of Credit

A line of credit is a type of loan that lets you borrow money up to a preset limit. You can use the funds as needed, up to a specified maximum and pay the loan back at any time. You are charged interest from the day you withdraw money, until you pay the loan back in full.

Advantages

• Interest rates for lines of credit are usually lower than they are for credit cards, personal loans or other short-term loans.
• There are usually no set-up fees, annual fees or penalty charges for paying off your line of credit at any time, depending on the product and the financial institution.
• If you have a bank account with the same financial institution that you use for your line of credit, you can set it up so that any overdraft on your regular bank account is transferred to your line of credit, which can help avoid unnecessary fees.

Disadvantages

• With easy access to money from a line of credit, some people can get into serious financial trouble because they don’t control their spending.
• The interest rate on a line of credit could go up, depending on market conditions.
• If interest rates increase, you may have difficulty paying back your loan.
• Usually, you are required to pay the interest every month, but you may not have to make regular payments on the amount you borrowed (principal). This may mean you will pay a lot of interest and take a long time to pay off the loan.

All about lines of credit

• Shopping Around for a Line of Credit – learn about the different line of credit options
• Lines of Credit: Your Rights and Responsibilities – what you need to know before you get one

Related Resources

Date Modified:

2013-04-16