Personal Loan Vs Line of Credit

Personal Loan Vs Line of Credit

Personal Loan vs Line of Credit

If you’re deciding between a personal loan and line of credit, we’ve got you covered. Here’s what you need to know about each.

A loan and line of credit are two different ways you can borrow. Loans have what’s called a non-revolving credit limit, which means the borrower only has access to the amount loaned once, and they subsequently make principal and interest payments until the debt is paid off.

A line of credit, on the other hand, works differently. The borrower receives a set credit limit—just like with a credit card—and makes regular payments composed of both a principal and interest portion to pay it off. But unlike a loan, the borrower has continuous and repeated access to the line of credit while it is active.

Type of CreditPersonal LoanLine of Credit (LOC)
Loan Limitsup to $30,000.00up to $20,000
Type of Interest RateFixedVariable
FeesNo annual or origination feesfluctuate
Termup to 60 monthsOngoing; draw and repayment
Funding Method Lump-sum amountOngoing access
PaymentSame payment amount for entire loanPayment amount fluctuates based on Loan Balances
Interest AccuresInterest accrues on the full loan amount right away.Interest accrues only when funds are accessed.
AccessThe borrower only has access to the amount loaned in one lump sum.A line of credit is a preset borrowing limit that can be used at any time, paid back, and borrowed again.

Personal Loans Are Predictable

Personal loans come with a fixed annual percentage rate that allows the borrower to know his or her monthly payment and plan their budget accordingly.

If, for example, you need the cash for an unexpected expense like a car repair, major appliance replacement or a pet emergency, then getting that particular amount and predictable payment is a good way to handle it.

Lines of Credit Make Good Safety Nets

You can get these anytime and have the money at the ready whenever it’s needed. It can sit there untouched for years, but you won’t be paying interest.

Many people tend to use lines of credit as safety nets for unplanned costs or as overdraft protection for checking accounts.


Need Cash? Want to setup your Safety net?

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