How to Decide between Personal Loans vs Lines of Credit?

Imagine you are on a mission to make the best financial decisions for yourself. You have specific goals in mind, like home repairs, paying off your debt, or managing unexpected medical bills. But how would you pick the right tool for this mission? There are two tools that can help you with your goals: a line of credit and a personal loan. Both of them can help you out financially but they are very different from each other. Know the difference between Personal Loans vs Lines of Credit. You can think of personal loans as getting a big amount of money from a friendly lender. One of the best personal loan benefits is that you know exactly how much you will be getting and how long it will take you to pay it off. It has predetermined terms and arrangements that make it easier to deal with the repayments.

A line of credit can be like a financial safety net. It’s similar to borrowing from a friend who lets you borrow whenever you need it. You will be required to pay interest on money that you actually use. Line of credit usually has a credit limit up to which they allow you to borrow the money.

In this article, we will explore these two options in detail so you can decide which one would be best suited to your financial requirements.

Personal Loans vs Lines of Credit major differences

With a bit of basic info on both lines of credit and personal loans, we will be discussing their key difference to figure out how they work:

Loan structure

Personal loan: Personal loans provide a lump sum of money upfront.

Lines of credit: Lines of credit offer you a revolving credit limit that you can draw from as you need and when you need it.

Interest rate

Personal loan: The interest rates on personal loans usually range from 5% to 36%, depending on your credit score.

Lines of credit: Lines of credit usually have variable rates, normally starting around 9% but can vary widely based on your creditworthiness.

Repayment structure

Personal loan: Personal loans usually have fixed repayment terms that range from 2 to 7 years.

Lines of credit: These have no fixed terms. You can make a minimum monthly payment and have the flexibility to repay over an extended period. You can either make a minimum payment or the full balance at once.


Personal loan: The funds can be used for practically all kinds of purposes.

Lines of Credit: The money is usually used for ongoing expenses, emergencies, or fluctuating costs.

Access to funds

Personal loan: You get a lump sum at the beginning of the loan term upfront.

Lines of credit: You get continued access to the funds within the credit limit.

Collateral requirement

Personal loans: These are usually unsecured, which means no collateral is required.

Line of credit: Depending on the type of line of credit, it can be secured or unsecured.

Credit check

Personal loan: Personal loans almost always require a credit check.

Line of credit: Lines of credit require a credit check, especially for unsecured LOCs.

Interest costs

Personal loan: Personal loans have a fixed interest rate which makes it easier to predict total interest cost.

Lines of credit: Interest rates on LOC can vary over time because of variable interest rates.

Personal Loans vs Lines of Credit

There’s no straightforward answer to this question. It all eventually depends on the borrowers’ financial situation. If you don’t need a huge sum urgently, then lines of credit will probably do the job as long as you can afford the fluctuating interest rates. If that’s an issue or you need a large sum of money, then personal loans would be better for you. Analyze the differences we have highlighted to understand which one would be suitable for your financial situation.


There’s no such thing as the “right product” when it comes to loans or credits. You have to scrutinize all the options to figure out which one would be best suited for you based on your credit score, monthly income, and savings. We hope this helps you understand both options and make a smart decision.