Personal Loan vs Line of Credit

Personal loan has some differences versus a line of credit.

For example, lines of credit offer continuous funds, whereas a loan provides a lump sum.

Loans also have fixed interest where lines of credit have variable interest.

Lines of credit are ideal for continuous but uncertain costs, and a loan is ideal for single or known costs.

What’s Easier to Get: Personal Loan or Line of Credit?

Personal loans and personal lines of credit are similarly difficult to get.

Both require a healthy credit score, good credit history, and a certain demonstrable income.

The bigger concern is how they should be used; lines of credit are ideal for continuous but uncertain costs, and a loan is ideal for single or known costs.

Personal Loan

  • Lump sum
  • Fixed interest
  • Regular payments of the same amount
  • Interest charged on whole amount
  • Ideal for single or known expenses

Line of Credit

  • Continuous funds
  • Variable interest
  • Minimum monthly payment
  • Interest charged on money spent
  • Ideal for ongoing but uncertain expenses

Personal Loan vs Line of Credit FAQs

A line of credit is money lent to an individual or business. If a line of credit is revolving, then the line of credit will replenish as the borrower pays back money borrowed.
The acronym LOC stands for Line of Credit.
A revolving line of credit is one which replenishes when the loan is paid off. An example of this is a credit card. A non-revolving line of credit closes once the loan is paid off, such as a student loan.
A loan is typically a lump sum whereas a line of credit is typically revolving which allows for the borrower to draw, repay, and again draw as needed.

Line of Credit (LOC) Definition

What Is a Line of Credit and How Does it Work? Revolving vs Non-Revolving

Lines of credit will either remain open, or will close, once the loan has been repaid.

Revolving lines of credit are considered “revolving”because an individual’s credit is replenished when some or all of the outstanding debt has been paid off.

In contrast, a non-revolving line of credit is closed once the account is fully paid off, such as a student loan or mortgage.

Non-revolving credit usually has a lower interest rate.

How does a Line of Credit Work? Secured vs Unsecured

Loans may be unsecured loans, or secured by collateral.

A home equity loan is an example of a collateralized loan, whereby the home is the collateral and will be claimed by the creditor in the event of a default on the loan.

Credit card loans are almost always unsecured, which causes creditors to take on more risk and is why credit card interest rates are generally higher and the borrowing limits are generally lower than secured loans.

Understanding a Credit Line FAQs