A line of credit is a reusable borrowing limit that lets a borrower draw, repay, and borrow again.
Line of credit means a reusable borrowing limit that lets a borrower draw, repay, and borrow again up to the approved amount. It is one of the most familiar forms of flexible consumer borrowing in Canada.
Line of credit matters because it gives the borrower ongoing access to funds without requiring a new loan application each time money is needed. That flexibility can be useful for cash-flow management, uneven expenses, or planned borrowing needs.
It also matters because flexibility can hide risk. A line of credit can remain outstanding for a long time if the borrower treats it like permanent income instead of borrowed money that still needs a repayment strategy.
In Canada, lines of credit are commonly offered by banks and credit unions as Unsecured Line of Credit or Secured Line of Credit products. Interest is generally charged on the borrowed amount rather than on the unused portion of the limit. Unlike a credit card, a line of credit usually does not rely on the same purchase-grace structure.
A line of credit can appear on the bureau file and contribute to the borrower’s revolving exposure, which means it can affect Credit Utilization and how the borrower’s overall debt picture looks in underwriting.
A borrower is approved for a $15,000 line of credit and draws $4,000 for an unexpected expense. Months later, after repaying part of that balance, the borrower can draw again up to the available amount. That reusable access is what separates the line of credit from a Personal Loan.
Line of credit is not the same as a Personal Loan. A personal loan typically advances one amount and follows a fixed payoff path. A line of credit keeps reopening available room as the borrower repays.
It is also not identical to a Credit Card. Both are revolving, but cards and lines of credit usually follow different billing, interest, and transaction structures.
Unlike a structured personal loan, a line of credit also usually does not follow the same Loan Term and Amortization pattern that pushes the balance toward a fixed payoff date.