Line of Credit vs Credit Card in Canada: What a $5,000 Balance Costs
If you carry a balance from month to month, a line of credit usually costs far less than a credit card. If you pay in full every month, the card wins, because a line of credit charges interest from day one.
- Rates checked November 14, 2026
- By Krish Paul
- 8 min read
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This guide runs the numbers on a $5,000 balance and shows where the cheaper option can still cost you more.
The short answer
For a balance you will carry for months, an unsecured line of credit is usually cheaper. Paying off $5,000 over 12 months costs $615.37 in interest on a 21.99% card and $288.64 on a 10.49% line of credit, a saving of $326.73. For spending you pay off in full each month, the card is cheaper because purchases get an interest-free grace period and a line of credit does not.
The Financial Consumer Agency of Canada (FCAC) says personal line of credit rates are usually lower than credit card rates. The catch is in how each one is built: when interest starts, what the minimum payment covers, and whether the rate can move.
Card or line of credit: what would you save?
Enter your balance and the two annual rates you have been offered. The result updates as you type.
Assumes both rates stay the same for the year and interest is charged monthly at the annual rate divided by 12. It leaves out fees, new purchases and rate changes. Calculator by Gizly.
What $5,000 costs on each, worked out
Here is a hypothetical $5,000 balance paid down in 12 equal monthly payments at three real advertised rates. The card rate is the 21.99% purchase rate on TD’s Cash Back Visa Infinite card. The line of credit rates are the lowest advertised by BCU Financial, a Toronto credit union, as of October 29, 2026: from 10.49% unsecured and from 5.15% secured.
The monthly payment barely changes: $467.95 on the card against $440.72 on the unsecured line. The interest does. The card costs more than twice as much because its rate is more than twice as high.
Stretch the payoff to 24 months and the gap grows. The card would cost $1,224.79 in interest and the unsecured line $564.57, a difference of $660.22. The longer you carry the balance, the more the rate matters.
Secured lines cost less but carry more risk
The 5.15% secured line in the chart cut the interest to $140.57. The FCAC explains that a secured line is backed by an asset, such as your car or home, and the lender may take that asset if you do not pay. A home equity line of credit is one type, secured by your home. If you are weighing one, see how much a HELOC lets you borrow first.
How the two products differ
Rate is the headline, but these features decide what you actually pay.
| Feature | Credit card | Unsecured line of credit |
|---|---|---|
| Example rate | 21.99% on TD Cash Back Visa Infinite purchases | From 10.49% at BCU Financial |
| Interest-free period | At least 21 days on purchases if paid in full | None. Interest starts the day you borrow |
| Cash | Cash advances: 22.99% at TD, no grace period | Withdraw cash at the line’s rate |
| Minimum payment | Set by your card agreement | Usually equal to the month’s interest |
| When the rate changes | Can rise if you miss minimum payments | Usually variable |
| Yearly cost to hold | $139 annual fee on the TD card above | Some charge registration or admin fees |
Rates and fees checked November 14, 2026 on TD’s product page and BCU Financial’s rate page (rates as of October 29, 2026). Your own offer depends on your credit.
No grace period on a line of credit
The FCAC says interest on a line of credit starts the day you withdraw money and runs until the balance is paid in full. A card works differently. Federally regulated institutions must give at least a 21-day grace period on card purchases, and you pay no interest if you clear the full balance by the due date.
So for everyday spending you pay off each month, the card is free and the line is not. Put $1,000 on a 10.49% line for 25 days and you owe about $7.18 in interest. The same purchase on a card, paid in full by the due date, costs nothing. Our guide to the credit card grace period explains when that interest-free window is lost.
Cash is where the card is weakest
The FCAC says there is no grace period on a credit card cash advance. You pay interest from the day you take the cash until it is paid back. TD lists 22.99% on cash advances for the card above, higher than its purchase rate. Borrowing $1,000 for 30 days costs about $18.90 at 22.99% and about $8.62 on a 10.49% line, before any cash advance fee your card agreement sets. More on that in our cash advance cost guide.
The interest-only trap
The FCAC says the minimum payment on a line of credit is usually equal to that month’s interest, and warns that paying only interest means you never pay off the debt.
- Interest-only paymentOn $5,000 at 10.49%, the minimum is about $43.71 a month.
- Two years laterYou have paid $1,049.04 in interest and still owe the full $5,000.
- The fixPay a fixed amount instead. $440.72 a month clears the same balance in 12 months for $288.64 in interest.
Card minimums are set in your card agreement. Our guide on paying only the minimum on a credit card shows how long they can take.
Hidden costs to check before you switch
- A rate that floats. The FCAC says line of credit rates are usually variable. The Bank of Canada raised its policy rate to 2.5% on October 28, 2026, and BMO and National Bank raised prime from 4.45% to 4.70% the next day. On $5,000, each 0.25-point rise adds about $12.50 a year in interest.
- Set-up and admin fees. The FCAC notes that some lines charge a registration or administration fee. Ask before you sign, and add it to the interest when you compare.
- Optional insurance. Lenders may offer payment insurance on a line of credit. The FCAC says it is not required for approval and needs your express consent.
- An easy limit to refill. The FCAC warns that easy access to a line of credit can lead to serious trouble if spending is not controlled. Moving a card balance to a line only helps if the card stays paid off afterwards.
- Approval is not automatic. Lenders look at your income, existing debt and credit report, and usually want a minimum household income. The rate you are offered may be higher than the lowest advertised rate.
How to move a card balance to a line of credit
- Get the real rate in writing. Ask for the line’s rate as prime plus a number, plus any set-up or annual fees.
- Compare the full cost. Put your balance and both rates into the calculator above and add any fees to the line of credit side.
- Pay the card off in one transfer. Draw only what you owe on the card and pay it straight to the card account.
- Set a fixed payment. Choose a payoff date and set up an automatic payment that clears the line by then, not the interest-only minimum.
- Keep the card at zero. Pay the card in full each month from now on so you are not carrying debt on both.
Frequently asked questions
Is a line of credit cheaper than a credit card in Canada?
Usually, if you carry a balance. The FCAC says personal line of credit rates are usually lower than credit card rates. On a $5,000 balance paid off over 12 months, a 10.49% line costs $288.64 in interest and a 21.99% card costs $615.37. If you pay your card in full by the due date, the card costs nothing in interest and the line of credit does.
What is the minimum payment on a line of credit?
The FCAC says the minimum payment on a line of credit is usually equal to that month’s interest. On $5,000 at 10.49%, that is about $43.71 a month. Paying only the interest never reduces what you owe.
Should I use a line of credit to pay off my credit card?
It can cut your interest roughly in half if the line’s rate is about half your card’s rate. It only works if you pay a fixed amount that clears the line by a set date and stop carrying a balance on the card. Otherwise you can end up owing on both.
Does a line of credit have a grace period?
No. The FCAC says interest on a line of credit starts the day you withdraw money and continues until the balance is paid in full. Credit card purchases get an interest-free grace period of at least 21 days at federally regulated institutions if you pay the full balance by the due date.
Can my line of credit rate go up?
Yes. The FCAC says line of credit rates are usually variable. When BMO and National Bank raised prime from 4.45% to 4.70% on October 29, 2026, rates on lines tied to their prime rose with it. On a $5,000 balance, a 0.25-point rise adds about $12.50 a year in interest.
Is a cash advance or a line of credit better for cash?
A line of credit is usually cheaper. Card cash advances have no grace period, and TD lists a 22.99% cash advance rate on its Cash Back Visa Infinite card. Borrowing $1,000 for 30 days costs about $18.90 in interest at 22.99% and about $8.62 at 10.49%, before any cash advance fee.
- Sources, checked November 14, 2026: FCAC: Lines of credit (modified 2025-10-14); FCAC: How credit cards work (modified 2025-10-15); TD Cash Back Visa Infinite card (purchase rate, cash advance rate and annual fee); BCU Financial: Line of credit rates (rates as of October 29, 2026); Bank of Canada: Policy rate decision, October 28, 2026; BMO prime rate announcement; National Bank prime rate announcement.
- Method: Interest figures use the standard loan payment formula with interest charged monthly at the annual rate divided by 12, and were checked against a month-by-month schedule in Python. Short-term interest figures use the annual rate times days divided by 365. All examples are hypothetical and assume rates do not change.
Important: This guide is general information, not financial or legal advice. Rates and fees change, and the rate you are offered depends on your credit and income. Gizly is not paid by any lender mentioned here. See our affiliate disclosure.
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How this page was made: Gizly uses AI tools to help research and draft its guides. Krish Paul, the editor, is responsible for what Gizly publishes. Spot an error? Tell us and we will fix it.
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