Line of Credit Interest Rates in Canada: How Your Spread Is Set

A line of credit interest rate is usually quoted as a spread over prime: prime plus a margin, or prime minus a margin for the strongest borrowers. The prime in that formula is the lender's own posted prime, which generally moves when the Bank of Canada's policy rate moves. The margin — the spread — is the part that changes from person to person, and it is decided during underwriting based on how much risk the lender believes you carry.

The two parts of every line of credit rate

Every variable-rate line of credit is two numbers welded together: a benchmark (prime) and a spread (your margin). Knowing which part moved, and why, tells you whether there is anything you can do about it.

• Prime is set by the lender, not by government. It typically tracks the Bank of Canada's policy rate — when the central bank changes its policy rate, lenders usually adjust prime in the same direction within a short window. You can follow policy rate decisions and movements in related rates on the Bank of Canada's rates page.
• The spread comes out of the lender's underwriting decision about you. It is where the difference between two people who both see the same prime rate actually lives — and that difference can be wide.

The same logic drives any personal interest rate you are quoted, whether it sits on a line of credit, a car loan or an unsecured instalment loan: a benchmark plus a risk premium sized to the individual borrower.

How the spread is actually set

Underwriting for a line of credit is a risk assessment expressed as a number. The lender is estimating two things: the chance you default, and the chance it may have to fund the entire limit at once. A line of credit is generally a demand facility — the lender commits to advancing money on request, up to a limit, and it prices that commitment.

Notice that this table describes direction, not size. No published formula converts these factors into a rate. Two lenders given identical information can arrive at different spreads, because each weighs the factors differently and each funds itself at a different cost.

Secured versus unsecured: the largest single swing

If you own property, security is usually the biggest discount available on a line of credit. Security gives the lender a legal claim on an asset if you default, which lowers its loss when things go wrong — so it prices the borrowing lower.

There are limits on how much secured lending can be extended against a home. At federally regulated lenders, home equity lines of credit are generally limited to 65% of appraised property value, with total secured lending against the property usually capped at 80%. The Financial Consumer Agency of Canada explains how combined loan-to-value limits work and what they mean for how much you can actually draw. An unsecured line of credit carries no such calculation — and a higher spread to match.

Why your rate changes after you sign

Most lines of credit are variable. When prime moves, your rate and your payment move with it, usually within days. That cuts both ways: a falling policy rate reduces what you pay on the same balance, and a rising one increases it.

The spread can also move, and this is the part borrowers often miss. Some agreements lock the spread for the life of the facility. Others allow the lender to change it on notice — typically if your credit profile deteriorates, if you miss payments, or if the lender's own funding costs change materially. Before signing, read the section of the agreement dealing with rate changes and ask directly: is the spread fixed, and under exactly what circumstances can it be changed?

Your own behaviour matters too. Because interest is usually calculated on your daily balance, the timing of what you draw and when you repay it affects total cost more than a small difference in spread over a short period.

Costs that are not in the rate

• Annual or administration fees — some facilities carry a fee whether you use them or not.
• Inactivity fees — charged where a line sits unused for a period.
• Setup and registration costs — a secured line requires a legal charge on your property, with associated legal and registration costs.
• Discharge fees — what it costs to remove that charge when you pay the line off or move it.
• Optional insurance products — frequently offered alongside a line of credit, sold separately, and not part of the interest rate.

A line of credit with a slightly higher spread and no fees can cost less than one with a lower spread and a stack of annual charges. Compare all-in cost, not the headline rate.

How to compare line of credit offers

1. Ask for the all-in annual cost of the facility at your expected average balance — interest plus fees.
2. Ask whether the quoted rate is tied to the lender's prime, and whether the spread is fixed or changeable.
3. Ask what happens to the rate and the limit if your circumstances change: job loss, reduced income, or a drop in your credit score.
4. Ask whether the facility is readvanceable — once you repay principal, can you borrow it again without reapplying?
5. Ask what security is required, and what it costs to register and later discharge.
6. Compare against a fixed-rate instalment loan if you need a predictable payment. A fixed rate removes uncertainty, but you give up the benefit of falling rates.

Where a line of credit sits on the cost spectrum

Context helps. A secured line of credit against property is generally the cheapest form of revolving borrowing available to a household, and a credit card is typically the most expensive mainstream option. Payday lending sits far beyond that. Where a province operates a licensed payday regime, federal regulations cap the cost of borrowing at $14 per $100 advanced, and some provinces set a lower cap, with the lower figure applying (SOR/2024-114). Payday loans are generally up to $1,500 for a term of 62 days or less, and Quebec does not license payday lending, which effectively prohibits the model there. Above all of it sits the criminal rate of interest: 35% per year under section 347 of the Criminal Code, calculated using a defined method that aggregates interest and certain charges.

If your quoted rate is higher than you expected

The spread surprised you, usually for one of three reasons: something on your credit file, something about how your income was documented, or the fact that you applied unsecured when you could have applied secured.

Start with your credit report. Canada has two national credit reporting bureaus, Equifax Canada and TransUnion Canada, and a free copy of your report is available from each; the Financial Consumer Agency of Canada explains how to request one. Look for errors, accounts you do not recognise, and items that should have aged off. A consumer proposal stays on a report for three years after completion or six years from filing, whichever comes first, and a first bankruptcy stays for six years after discharge. Those timelines cannot be shortened by asking.

Be careful about applying repeatedly. Several credit applications in a short period can themselves affect your file. It is usually better to fix what you can and then apply once, informed. If your situation is complex — a recent insolvency, a business with irregular revenue, a property with multiple charges — the decision is significant enough that regulated professional advice is worth the cost.

If something goes wrong

Complaints about federally regulated financial institutions are handled by the Financial Consumer Agency of Canada. Provinces license and supervise most other lenders, and each maintains a consumer protection office. If you cannot resolve a dispute directly with the lender, those are the correct escalation routes, and they cost nothing to use.

loanwolf.ca is a matching service, not a lender. It does not set rates, make credit decisions or fund loans, and it cannot promise that any application will be approved. The lowest rates on any line of credit or loan go to the most qualified applicants — strong credit history, stable documented income, and, where possible, security. When a quoted rate looks unusually low, it is reasonable to ask what qualifications that rate assumes, and to compare the all-in cost rather than the headline number.