A personal line of credit or Home Equity Line of Credit is one of the most flexible financial tools available to Canadians, but also one of the most commonly misunderstood. Unlike a standard personal loan where you receive a fixed lump sum and repay in equal scheduled installments over a defined term, a line of credit lets you borrow only what you need when you need it, repay at your own pace, and borrow again up to your approved limit. How Interest Is Calculated Daily on a Canadian Line of Credit: Interest on a Canadian line of credit is typically calculated daily on the outstanding closing balance and charged to the account monthly. Every single day you carry any balance, interest accrues. Because most Canadian personal lines of credit use variable interest rates expressed as the lender prime rate plus a set margin, your monthly interest cost fluctuates automatically with Bank of Canada rate decisions. When the Bank raises rates, your line of credit becomes more expensive immediately and without requiring any new agreement. In 2026, most personal lines of credit in Ontario charge rates of approximately 7% to 11%. The Minimum Payment Trap on Canadian Lines of Credit: Most Canadian financial institutions require only the monthly accrued interest as the minimum payment on a personal line of credit, creating a financially dangerous trap that many borrowers fall into without realizing it. Paying only the interest minimum means your principal balance never decreases. A $15,000 line of credit at 8% costs approximately $100 per month in minimum interest. Paying only minimums for five full years means $6,000 in interest paid while still owing the full original $15,000. Effective Repayment Strategies: The round-up method requires calculating your monthly interest charge and adding at least 2% of the outstanding principal as an additional payment. For a $10,000 balance at 8%, monthly interest is approximately $67 and 2% of principal is $200, creating a recommended payment of $267 per month that eliminates the balance in approximately 45 months while paying only $1,200 in total interest. When a Line of Credit Makes Sense vs a Personal Loan: A line of credit suits situations where your borrowing needs are uncertain in timing or exact amount, such as ongoing home renovation projects or a financial safety net for self-employed Canadians. A personal loan is preferable when you know exactly how much you need upfront and want the accountability of a fixed repayment schedule. HELOC Specifics for Ontario Homeowners: A Home Equity Line of Credit allows Ontario homeowners to borrow against property equity at significantly lower rates than unsecured lines of credit, typically prime rate plus 0.5% to 1.0%. HELOC credit limits can reach 65% of appraised value minus outstanding mortgage balance. While HELOCs offer attractively low rates, they secure the debt against your home, meaning failure to service the debt could ultimately result in proceedings against your most important asset.