How to Apply for a Student Line of Credit in Canada

Student lines of credit are special loans designed specifically for students to help cover the costs of post-secondary education, such as tuition, textbooks, exam fees, and student housing.

Unlike a regular loan, student lines of credit work more like a credit card. You can borrow money as much as you need (subject to credit approval), and as you repay it, you can borrow again up to your maximum credit limit. This allows you to withdraw only what you need and when you need it. For example, if you have a $20,000 line of credit but only use $15,000, you only need to repay the $15,000 plus interest.

Student lines of credit offer an alternative to government student loans, like OSAP in Ontario. While the Canadian federal government student loans offer several unique benefits, not everyone can qualify, and that’s where student lines of credit come in to help.

How to apply for a student line of credit in Canada

It’s fairly easy to apply for a student line of credit. But before you do, you’ll want to research all of your options. Each financial institution has its own requirements, and you’ll need to make sure you qualify. For example, some institutions might require you to be a full-time student, while others may allow you to be part-time.

Also, some institutions may have special lines of credit for students enrolled in specific programs or fields of study at an eligible post-secondary school or offer higher lines of credit for those in graduate vs undergraduate programs. This is why it’s important to do your research first.

Once you’ve selected which student line of credit you’d like to apply for, you’ll need to make sure you have the right documentation. Generally, you’ll need to provide:

• Proof of enrolment

• Government-issued photo ID

Some financial institutions may require further documentation, such as proof of annual income or an estimate of your educational costs. They may also require you to have a co-signer.

Once you have that information gathered, you can then apply for your student line of credit. Many financial institutions allow you to apply online, but you can also do it over the phone or in person. However, some may require you to apply in person.

Your financial institution will then decide the maximum credit limit for the amount you can borrow. This amount may depend on your program, school, living expenses, credit history, and ability to repay the loan.

Where to apply for a student line of credit

As we’ve explained, a student line of credit is a borrowing option designed specifically for students and is available at various financial institutions like banks or credit unions. Many of the top institutions in Canada offer their own student lines of credit, including:

• Affinity Credit Union

• BMO

• CIBC

• Coast Capital

• Desjardins

• National Bank

• RBC

• Scotiabank

• TD

While these are just some of the options available, many other financial institutions also offer student lines of credit with different credit limits and interest rates. Some institutions even offer different credit limits based on your program or field of study, such as college or undergraduate, professional or graduate, or even more specifically, a line of credit for students in the medical/dental/veterinary field.

If you’re looking for a student line of credit, it’s a good idea to shop around and compare several institutions to find the best fit for your needs.

How to access money from your student line of credit

Once your application is approved and all required documents have been signed, you should be able to access your student line of credit. You can typically access the credit from your student line of credit:

• At a branch of your financial institution

• At an ATM

• Through online, mobile, or telephone banking

• By writing a line of credit cheque

Can you get a student line of credit with no income?

It depends on the financial institution, but yes, students can qualify for a student line of credit with no income as long as they have a co-signer. For students, a co-signer is typically a parent or guardian. Basically, if a parent or guardian cosigns the loan, and the student has trouble making payments, the cosigner is agreeing to repay the line of credit.

Financial institutions are more willing to give loans to students with no income if they have a co-signer because they know that their loan is guaranteed to be paid back one way or another. Having a co-signer can also help a student get a line of credit with bad credit.

What are the benefits of having a student line of credit?

There are several benefits to having a student line of credit:

Lower interest rates

Student line of credit interest rates in Canada are typically lower than those of other types of loans, such as a credit card.

Set draw and repayment periods

During your draw period, you can take money from your student line of credit as often as you want, as long as you don’t go over your credit limit. The length of this period depends on several factors, such as how long you’ll be in school, and can last up to ten years.

Ability to draw on a line of credit when needed

Once you have a student line of credit, you can withdraw money whenever you need it. You can do this using a debit card, writing a line of credit cheque, transferring it online to your bank account, or going to your bank or credit union in person. And if you start paying back your line of credit during your draw period, you’ll be able to withdraw that money again if needed.

Only pay interest on what you borrow

During your draw period, you’ll have no annual or monthly fees, and you don’t have to make monthly payments on the money you borrowed. You pay only the interest. However, you will only be charged interest on the amount you take out, not on the full credit limit. For example, if your full credit limit is $20,000, but you’ve only withdrawn $15,000, then you are only required to pay interest on the $15,000.

Builds your credit score

As long as you make your interest-only payments on time every month, this good behaviour will be reported back to Canada’s credit bureaus, which helps build your credit score. This is especially important for students as they’re typically new to building credit, and it’s an easy and effective way to do it. Having a good credit score after graduation will allow you to apply for things like unsecured credit cards and a mortgage or even help you get a better job.

What are the risks of a student line of credit?

While there are many benefits to having a student line of credit, there are still a few risks to consider:

It has a variable interest rate

One of the biggest risks may be the interest on a line of credit. Most lines of credit have variable interest rates, which means they can go up or down based on the economy. This can make it harder to predict your monthly payments, meaning it could be more challenging to stick to a budget.

The interest rate you pay will change based on the financial institution’s prime rate and the Bank of Canada’s lending rate. Your rate will also depend on whether your line of credit is secured or unsecured and your credit score. See your student line of credit agreement for details.

Your co-signer shares responsibility

If a parent or guardian cosigns for the line of credit and the student struggles to make payments or can’t pay, the cosigner agrees to repay the student line of credit. This can put stress on the relationship between the borrower and co-signer. Both the borrower and cosigner need to understand this commitment before applying.

It can impact your credit score

Paying your student line of credit on time is crucial for maintaining and building a good credit score. Late or missed payments can hurt your credit score, making it harder to get approved for loans or credit cards in the future. Plus, if you have a co-signer, missed or late payments will also affect their credit score, as the line of credit shows up on both the borrower’s and the co-signer’s credit reports. This is another thing that’s important for both the borrower and co-signer to understand before applying.

It can be easier to overspend

Another big risk of student lines of credit is if you don’t budget your loan carefully, it could leave you with a lot of debt. Since you can easily access the money, you need to be extra careful not to overspend. It’s best to only borrow as much as you need to cover your needs. Remember, this is borrowed money that you will have to pay back.

There’s more pressure to pay it back

After you graduate, you’ll need to start repaying both the borrowed amount and the interest you’ve accrued. While most financial institutions offer a brief grace period, this can be challenging if you’re not earning much or are still job hunting. And unlike other student loan options, like government student loans, there’s no financial assistance if you find yourself stuck.

What’s the difference between a student line of credit and a student loan in Canada?

A government student loan is money given by the government (provincial and/or federal) to students who need financial help for post-secondary education. Like a student line of credit, student loans are given while you are in school and must be paid back after graduation. A few of the main differences are in the interest, grace period, and post-graduate financial assistance.

Interest

With a student line of credit, students are still required to make monthly interest payments while they’re in school. However, for a student loan, students don’t pay anything while they’re in school. Plus, as of April 1, 2023, the Government of Canada stopped adding interest to all Canada Student Loans, including those being repaid. Nevertheless, depending on your province, there might still be interest on the provincial part of your loan.

Grace period

If you have a Canada Student Loan instead of a student line of credit, the repayment terms are different. With a government student loan, you get a 6-month grace period after you graduate, where you don’t have to make any payments. With a student line of credit, your grace period varies depending on your financial institution, but some allow up to a 12-month grace period.

Repayment Assistance Plan (RAP)

Finally, if you have a student loan instead of a student line of credit, you have access to Canada’s Student Loan Repayment Assistance Plan (RAP). This plan helps students who are struggling to repay their government student loans and cannot be applied to money borrowed through a student line of credit.

Learn more about KOHO’s finance options for students

A student line of credit offers a flexible way to finance post-secondary education, providing a grace period before repayment begins. You only need to repay the amount you borrow plus the interest. However, you will need to pay interest on the borrowed money while you are still in school. And that’s where KOHO can step in to help you handle your spending and finances responsibly, ensuring you have the funds for your education.

With instant approval on a KOHO virtual credit card, you can easily buy what you need without carrying your wallet. Plus, you can earn cash back on every dollar spent on groceries, gas, shopping, or outings with friends.

KOHO also offers a high-interest savings account to help you earn more on your savings. Whether you are saving for your education or a graduation trip, you can make the most of every dollar deposited.

Plus, with free credit score checks to help you monitor your financial health, you can build your credit with KOHO easily. You’ll also get access to budgeting tools, spending insights, and resources to develop good credit habits.

Discover today how KOHO can support your education.