What is a line of credit?
When you need to borrow money, a line of credit can be an option. Learn about the different types in Canada.
When you need to borrow money, a line of credit can be an option. Learn about the different types in Canada.
A line of credit (LOC) is a revolving loan with a predetermined maximum and interest rate set by the lender. You pay interest only on what you borrow. You can use the money for anything you like, and you can pay it back and borrow again anytime. LOCs have two types: secured and unsecured. Secured LOCs require an asset as collateral—for example, your home or car. If you default on your interest payments, the lender will take possession of the asset. Unsecured LOCs aren’t tied to assets, so they tend to charge higher interest rates to compensate for the lender’s added risk.
Example: “Vince took out a home equity line of credit to pay for his basement renovation.”
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