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Personal Loans

Line of Credit vs. Personal Loan

At first glance, a personal loan and a personal line of credit may look similar. They both offer you access to money, whether you need it for an emergency, a home improvement project, or a major life event.

But personal loans and personal lines of credit come with significant differences that affect how you borrow the money and how repayment works. This guide will walk you through what you need to know to determine which is right for you.

In this guide:

Personal loan vs. line of credit: At a glance

Details for personal loans and personal lines of credit will vary based on the lender, but basic similarities and differences include:

Personal loanPersonal line of credit
AmountsFixed loan amount, can be as much as $100,000Revolving limits up to $500,000 (but often much lower)
TermsFixed repayment term lengthOpen indefinitely alongside a checking account
Interest rateFixed rates are standardVariable rates are standard
RepaymentFixed monthly paymentFluctuating
FeesPossible fees include an origination fee, late payment fee, and application feePossible fees include an application fee, late payment fee, cash advance fee, and overdraft fees

What is a personal line of credit?

A personal line of credit is a flexible loan that gives you ongoing access to borrow money when you need it up to an approved limit. It’s similar to a credit card or a home equity line of credit. You can get one through many banks and credit unions alongside your checking account. 

You only use as much of the line of credit as you need, and you only pay interest on the amount you use. The annual percentage rate (APR) on a line of credit is typically variable, and the payments fluctuate as the APR changes.   

Pros and cons of a line of credit


  • Borrow what you need when you need it.

  • You only pay interest on the amount outstanding.

  • Quick access to cash in an emergency.

  • If your credit utilization is low, you can access more credit as needed, and it may improve credit score.


  • Fluctuating monthly payments can make it difficult to budget for repayment.

  • If you don’t pay off the line of credit, it becomes costly.

What is a personal loan?

Personal loans are collateral-free installment loans that come with fixed interest rates and fixed payments. Many lenders offer them, including banks, credit unions, online lenders, and more. 

Uses for a personal loan include credit card debt consolidation, surprise medical bills, a vacation, and almost anything you can think of within the lender’s rules and regulations. 

Pros and cons of a personal loan


  • Use the funds for just about any purpose

  • Widely available

  • Money available upfront

  • Consistent monthly payments

  • Pay off faster with loan terms of seven years or less

  • Fixed monthly payments can make budgeting easier


  • Entire loan amount is distributed at one time

  • Monthly payments are often higher 

  • Need higher income and credit score to qualify

What is easier to get: a personal loan or a line of credit?

Different lenders have unique eligibility criteria, so it’s hard to say one is easier to get. Neither a personal loan nor a line of credit are secured loans, so higher credit scores are often required.

A personal  line of credit may be easier to get because it’s typically attached to a checking or savings account. However, since it is unsecured debt, borrowers need strong credit to be eligible.

On the other hand, some personal loans have flexible credit score requirements, which could make obtaining one easier. For borrowers who need loan funds but have less-than-perfect credit, a personal loan for fair or bad credit might be the right way to go.  

How do personal loans and personal lines of credit affect your credit report?

Erin Kinkade


When a lender does a hard credit check to approve your application for either, the impact on your credit score will often last around six months if you make on-time payments. By that time, your score will improve. By making payments, you can improve your credit utilization ratio. Conversely, if you don’t repay either products in responsible manner, it can harm your credit score and report.

Personal loan vs. line of credit interest rates: Which is more cost-effective?

When you consider how much it costs to finance with a personal loan vs. a personal line of credit, you’re likely concerned with the interest rate. That’s smart, but remember to also look at the loan term, which can be a bigger factor in the cost of financing.

If your personal line of credit has a high balance, and you don’t pay it off for 15 or 20 years, you’ll pay more than for a shorter-term personal loan, even if the interest rate is lower. 

Here’s an example. 

Example of personal loan vs. line of credit

The customer in this example is ideal. They have a credit score above 800 and sufficient income to borrow $50,000.

Personal loanLine of credit
APR11.49% fixed12.50% fixed*
Term6 years 15 years
Monthly payment$964.30$616.24 
Total interest paid$19,429.58$60,926.99
Total cost of repayment$69,429.58$110,926.99

*We used a fixed rate for the personal line of credit for simplicity, but most have a variable interest rate.

The monthly payment for the line of credit is lower when spread over 15 years, but as you can see, the interest paid over the life of the loan is much higher on a line of credit because of the longer term.

If you paid off your personal line of credit faster than 15 years, the interest cost would be lower. 

Consider the interest-rate environment

Erin Kinkade


If we’re in a high-interest-rate environment with the outlook of interest rates declining, you may benefit more from a variable interest rate. If we’re in a low-rate environment, as we most recently were were for almost 10 years, locking in a fixed rate could be the most advantageous—specifically for borrowers who do so when we rates are near 0%. If we are in a neutral rate environment—hovering around 2% or 3%, I recommend shopping to find the best terms and competitive pricing. For those who prefer or need fixed payments, a fixed rate would be the better option. For those who can manage a variable interest rate in their budget and risk tolerance, that may be the better option for them.

Personal loan vs. line of credit uses

You can use personal loans and lines of credit for almost any purpose. With a personal loan, where the money is distributed upfront, some situations make more sense than others.

Personal loan uses

  • Paying for a home improvement where the cost is known
  • Adoption or family-planning expenses
  • Debt consolidation
  • Vacation
  • Wedding
  • Emergency situations
  • Vehicle repairs

When it comes to a line of credit, you can use it for many of the same purposes as a personal loan, but with the added flexibility of borrowing only when you need it. That makes it ideal for unexpected costs. Ideally, pay it off as soon as you can to avoid costly interest charges. 

Line of credit uses

Examples of when you may want to use a line of credit include:

  • Paying for ongoing college tuition
  • Home repairs
  • Car repairs
  • Overdraft protection
  • Larger appliance purchases
  • Financial emergencies

A personal loan and a personal line of credit can be helpful when you need access to money. Which ones you choose depends on several personal factors. 

Here are scenarios where one or the other might be a better fit.

A personal line of credit is best for… A personal loan is best for… 
Establishing an emergency fundBorrowers who know how much they need
Aiding irregular incomeConsolidating debt
Borrowers unsure of how much you needFinancing a wedding or vacation
Financing a home improvement project

When a personal line of credit is better

When should you consider a personal line of credit rather than a personal loan? These are situations where a personal line of credit may be a better option.

If you need an emergency fund

If you want cash to access in an emergency without relying on a credit card, a personal line of credit will give you access to money quickly.

If you have irregular income

Managing money when your income fluctuates can be challenging. A personal line of credit can help you get through months when your income is low.

If you don’t know how much you need to borrow

When you know you’ll need to borrow money but you’re not yet sure how much, a personal line of credit allows you to borrow as you need it so you’re not taking out too large a loan.

If you want to finance a home improvement project

When you start a home improvement project, you won’t always know how much you need to borrow. A personal line of credit lets you borrow money as it’s needed to finance a home improvement project.

If a line of credit fits your needs, make sure to compare the best personal lines of credit.

When a personal loan is better

A personal line of credit is terrific in some situations, but a personal loan may be a better option at times.

If you know how much money you need

If you know you’ll need a fixed amount at once, a personal loan is a solid option to have quick  access to the money. This is especially convenient for large sums.

If you want to consolidate debt

If you have high-interest debt you want to consolidate, such as credit card debt, a personal loan is a better option than a line of credit. You can use the personal loan to pay off your outstanding debt, and you won’t be tempted to continue to rack up more debt with a revolving line of credit.

If you want to finance a wedding or a vacation

When you have a set budget in mind for a big expense, such as a wedding or vacation, it might be better to get a lump sum with a personal loan.

If a personal loan fits your needs, make sure to compare the best personal loans.