Line of Credit Interest Calculator Canada

How is line of credit interest calculated in Canada?

**Line of credit interest in Canada is calculated using daily simple interest on your outstanding balance.** Each day, your lender multiplies your current drawn balance by the daily interest rate (your annual rate divided by 365). At the end of each month, these daily charges are totalled and added to your statement.

The formula is straightforward: Daily Interest = Outstanding Balance x (Annual Interest Rate / 365). For example, if you owe $25,000 on a LOC at 7.2%, your daily interest charge is $25,000 x (0.072 / 365) = $4.93. Over a 30-day month, that adds up to approximately $148 in interest.

This is fundamentally different from how mortgages and term loans work. With a mortgage, you borrow a fixed amount and make blended payments of principal and interest on a set schedule. With a LOC, you can draw and repay at will, and interest adjusts daily based on your current balance. There is no fixed amortization schedule unless you create one yourself by making consistent payments above the minimum.

Most LOC interest in Canada is simple interest, not compound interest. The daily interest charges do not earn interest themselves. However, if you fail to make at least the interest-only minimum payment, unpaid interest gets added to your balance, and you start paying interest on interest. This is why making at least the minimum payment each month is critical.

LOC rates in Canada are almost always variable, expressed as prime + a spread. The Bank of Canada overnight rate determines the prime rate (currently prime = 4.45% as of April 2026). When the Bank of Canada changes its overnight rate, your LOC rate adjusts accordingly, changing your daily interest charge.

HELOC vs unsecured line of credit rates

**The type of line of credit you hold has a major impact on the interest rate you pay.** There are two main categories: secured lines of credit (typically HELOCs, backed by your home equity) and unsecured personal lines of credit (backed only by your creditworthiness).

HELOCs in Canada are priced at prime + 0% to prime + 1%, resulting in rates of roughly 4.45% to 5.45% (April 2026). Because your home serves as collateral, lenders face less risk and offer lower rates. However, if you default, the lender can force a sale of your property to recover the debt.

Unsecured personal LOCs carry higher rates because the lender has no collateral. Rates typically range from prime + 2% to prime + 7%, which translates to 6.45% to 11.45% currently. Your exact spread depends on your credit score, income stability, and existing debt load. Borrowers with excellent credit (750+) usually qualify for the lower end of the range.

For perspective, on a $50,000 balance, the difference between a 4.95% HELOC and an 8.45% unsecured LOC is $1,750 per year in interest. That is nearly $146 per month you could save by using a secured LOC instead of an unsecured one, assuming you qualify and own a home with sufficient equity.

The interest-only payment trap

**Making only interest-only payments on a line of credit means your balance never decreases.** This is by far the most common mistake Canadian LOC borrowers make. Because LOCs have no mandatory principal repayment schedule, it is easy to fall into a pattern of paying the minimum and never reducing the debt.

Consider a $30,000 unsecured LOC at 8%. The monthly interest-only payment is $200. If you make only interest-only payments for 10 years, you will have paid $24,000 in interest and still owe the full $30,000. You have effectively rented $30,000 for a decade with nothing to show for it.

The problem is compounded by the fact that LOCs are revolving. Even if you do pay down some principal, the credit is available to draw again. Without discipline and a repayment plan, many borrowers find their LOC balance stays flat or even grows over time.

To escape the interest-only trap, treat your LOC like a term loan. Set a fixed monthly payment that includes principal repayment and commit to not making additional draws. This calculator helps you model that scenario and see how much faster you can become debt-free.

How the prime rate affects your LOC

**Because LOC rates are variable and tied to the prime rate, every Bank of Canada rate decision directly changes your interest cost.** When the overnight rate rises by 0.25%, your LOC rate increases by the same amount, and your interest charges go up immediately.

For example, on a $40,000 LOC balance, a 0.25% rate increase adds $100 per year ($8.33 per month) to your interest cost. A full 1% increase adds $400 per year. During the 2022-2023 rate hiking cycle, the overnight rate rose from 0.25% to 5.00%, increasing LOC rates by 4.75%. A borrower with a $40,000 balance saw their annual interest cost jump from roughly $1,500 to $3,400.

On the other hand, rate cuts reduce your interest cost. The Bank of Canada cut rates seven times between June 2024 and March 2025, from 5.00% to 2.25%. This brought significant relief to LOC borrowers. As of April 2026, the overnight rate sits at 2.25% and the prime rate at 4.45%.

Because rate changes are unpredictable, relying on variable-rate debt like a LOC for long-term borrowing carries risk. If you have a large LOC balance, consider whether locking in a fixed-rate loan or mortgage would give you more payment certainty.

How to use this calculator: a worked example

**Let us walk through a real scenario to show what this calculator reveals.** Suppose you have a $35,000 unsecured line of credit at 7.7% (prime + 3.25%), and you are making interest-only payments of $225 per month.

Step 1: Enter $35,000 as the outstanding balance. Step 2: Set the interest rate to 7.7%. Step 3: Select 'Interest-only' as the payment mode. The calculator shows that your daily interest is $7.38, your monthly interest is $224.58, and your annual interest is $2,695. Your balance stays at $35,000 forever.

Now switch to 'Fixed monthly payment' mode and set the payment to $600 per month. The calculator shows you will pay off the LOC in approximately 72 months (6 years) and pay $8,116 in total interest. The balance trajectory chart shows your debt declining steadily over time.

The insight panel tells you that paying $200 more per month ($800 total) would pay off the LOC in approximately 50 months instead of 72, saving you $2,654 in interest. This is the power of principal repayment on a LOC: every extra dollar goes straight to reducing the balance, and since interest is calculated daily on the current balance, you start saving immediately.

Strategies to pay down your line of credit faster

**The most effective strategy is to treat your LOC like a fixed-term loan with mandatory principal payments.** Set a monthly payment amount that exceeds the interest-only minimum and automate it. Even an extra $100 per month above the minimum can cut years off your repayment.

Consider the snowball approach: if you have multiple debts, focus extra payments on the highest-rate debt first (often your unsecured LOC) while making minimums on the rest. Once the LOC is paid off, redirect those payments to your next highest-rate debt.

Avoid making new draws while repaying. The revolving nature of a LOC makes it tempting to use freed-up credit, but this resets your progress. If you need to restrict yourself, ask your lender to lower your credit limit to your current balance.

If you have a large LOC balance at a high rate, explore consolidation options. A fixed-rate personal loan or a HELOC (if you own a home) will lock in a rate and force structured repayment. The interest savings between an 8% unsecured LOC and a 5% HELOC on $40,000 is $1,200 per year.

Finally, make lump-sum payments whenever possible. Tax refunds, bonuses, and other windfalls applied directly to your LOC principal reduce your interest charges immediately. Since LOC interest accrues daily, even a mid-month payment reduces your interest cost for the remaining days that month.