Personal Line of Credit vs Personal Loan

You can take out loans without putting up any collateral with both personal loans, as well as personal lines of credit (LOC). But they serve different purposes. With personal loans, you receive a lump sum of cash and pay set monthly installments for the duration of the loan.

The ability to take out as much money as you want at whatever moment is provided by a personal line of credit.  It has a variable rate and you can repay it according to your schedule.

Personal lines of credit, as well as personal loans, are both acceptable options for borrowing funds. Your personal spending patterns will determine which is ideal for you.

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What Personal Line of Credit Is

Personal Line of Credit vs Personal Loan

You can use the available balance of cash up to your predetermined limit on a personal line of credit at any moment throughout the withdrawal period. The money is available for withdrawal as you require it.

If you follow the creditor’s rules, all money refunded throughout your drawing period adds to your available balance.

You get to pick when you want to take payments with LOC. Contrary to a term loan, where you are given a cash payment upfront and must start paying interest right away, this one requires ongoing payments. You may also choose to pay interest just on the money you withdrew.

When to Choose Personal Line of Credit

You have continuous financial access through a LOC, which you can use as necessary. Interest rate is only applied to the money you actually spend. If your financial obligations change quickly, a line of credit is an excellent option.

They are also helpful with recurring expenses where you still do not know the price. Also, in instances requiring considerable financial deposits. Similar to loans, lines of credit are frequently used to finance renovation or other house improvement projects.

People commonly seek a mortgage to purchase the property and a LOC at the same time to pay for any necessary upgrades. 

What Personal Loan Is

The funds you get from a creditor for almost any reason are known as a personal loan. Financing companies online, regional banks and credit unions all offer funding. The money is given all at once.

You must continue paying until the borrowing is entirely repaid when you get the cash. The fact that these loans have a set interest rate and payback schedule is one of their main advantages. Because most personal borrowings are unsecured, they do not require collateral.

You might start by contacting your bank or credit union to see whether they provide such loans. You can get guidance on the various borrowing options from your financial advisor. Additionally, they can provide you the lending possibilities for which you have the best chances of approval.

Online resources for these are available as well.  These loans are available from various providers online. Submit an application electronically and receive a response right away!  Following approval, funds may be accessible within 24 to 48 hours.

When to Choose Personal Loan

A personal loan can be used for many different things. Among the benefits of these borrowings that appeal to so many individuals is the flexibility to put the borrowed funds toward anything you see appropriate. Furthermore, this loan might be a suitable choice if you want some quick cash to cover urgent costs.

It could help you cut costs if you have a large debt with high interest rates.

A personal loan might be a less expensive option if you’re replacing a heater, purchasing new furnishings, or financing other large expenditures. You might be able to raise your credit score by getting one and repaying it on time. Particularly in the event that you have a record of outstanding debts on other borrowings.

Personal Line of Credit vs Personal Loan: Similarities

Personal Line of Credit vs Personal Loan: Similarities

When considering a line of credit vs personal loan, it is important to know both similarities and differences. Choosing the right option can be quite overwhelming. That is why you need to stay informed and do research!

The following are some of the most common resemblances between the two:

  • Credit history check – A hard credit check will be conducted to approve your application for both. This will have an impact on your credit score.
  • Interest rate – Making interest-related payments on borrowed funds is a requirement. 
  • Eligibility – Generally speaking, the basic criteria for personal loans and LOC is the same.
  • Unsecured loans – The majority of these are not secured. You are not required to put up a valuable item as collateral, such as your home or vehicle. 

Read Also: Personal Loan or Balance Transfer Credit Card

Personal Line of Credit vs Personal Loan: Differences

A predetermined borrowing limit known as a line of credit is available at all times. It can be used again after repayment and is continuous. Loans are granted in response to a borrower’s particular need, for example, the purchase of a property or car. Listed below are a few of the well-known differences:

  • Limits – You can take loans and pay them back using a LOC, which is often recurring.   In comparison, a credit limit is a component of a loan. The credit limit is the most money you can take out or utilize before you have to start making payments.
  • Types of Interest – In contrast to personal loans, which have set interest rates that are decided throughout the approval process and stay the same throughout the loan term, personal lines of credit have fluctuating rates.
  • Fees – On a personal line of credit, it is typical for creditors to impose monthly or yearly service charges in addition to other possible expenses. Origination and application fees, late payment, and prepayment penalties may all apply to personal loans.
  • Credit score – When requesting a LOC, applicants need a credit rating of 670 or higher. A minimum credit score of 580 is all that is necessary for some personal loans.
  • Payment schedule – Repayment terms with personal loans are fixed. On the other hand, lines of credit have a more flexible schedule.


Although they both grant you funds, personal loans and personal lines of credit differ considerably. A line of credit gives you continuous access to money, but a personal loan gives you one amount of cash with a regular payment schedule.

Think carefully about the way you intend to handle the funds and the spending patterns regarding managing and paying back debt before choosing the form of financing that is best for you.

Knowing your credit rating will help you determine which loans you might qualify for.  For the best choice, make sure to consider several lenders. You should always have a repayment strategy in place, whether a personal line of credit or a personal loan is the suitable solution for you.

Ideally, you should attempt to get financing aid that you will be able to repay. Confirm that the interest rate and schedule for payments are acceptable to you. Personal loans and credit lines can be significant instruments for speeding up the realization of your financial goals. However, they must always be used with caution.

Sources Used in Research for the Article:

  1. Loan terminology glossary, UCOP,
  2. 12 CFR § 160.3 – Definitions, Cornell Law School,
  3. What is a Personal Line of Credit, Consumer Financial Protection Bureau,


Is a personal loan better than line of credit?

This depends on your personal needs and spending habits. While a line of credit offers you more flexibility, personal loans provide more certainty. It is up to you to decide which one works better.

Is it harder to get a loan or line of credit?

Lines of credit require a better score than loans. If you have poor credit, it might be a difficult process to get a line of credit. They both have different criteria, so the answer to this is individual.

Is it smart to use a line of credit to pay off debt?

This can be a good idea due to the lower interest rates. However, this also means that you will have various debts to repay. You have to consider your financial situation first.

What are the risks of a line of credit?

If you overuse your LOC, this can have an impact on your credit score. This solely depends on how you handle this borrowing option. If you act responsibly, there should not be any risks.

How do I get approved for a personal loan?

Make sure to check and repair your score. It has to fulfill the requirements of a particular lending company. Pay off any previous debts you have. After that, gather the documentation and apply!