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Compare personal loans vs. lines of credit

Which offers better terms? A personal loan or a line of credit? The answer is in the details.

With so many options to choose from today when it comes to financing, it can get confusing when deciding between two basic borrowing options: personal loans and lines of credit.

Each has its own advantages and disadvantages, but making the wrong decision could be very expensive. Read our guide to learn how you can make the best decision for your financial situation — and potentially save lots of money in interest and fees.

Six main differences between personal loans and lines of credit

  • Loan term. Personal loans have a predetermined term length, usually between one and seven years. They’re paid back in full by the end of that term. However, lines of credit don’t come with a set repayment period, and the funds you borrow become available again after they’re repaid (plus interest).
  • Repayments. Both involve monthly repayments. However, personal loans have fixed monthly repayments while lines of credit depend on the previous balance, amount drawn, accruing interest and other factors.
  • Time of disbursement. With personal loans, your lender will disburse your funds upfront as soon as you agree to the loan contract and sign it. With lines of credit, you’re able to withdraw up to your approved limit on an ongoing basis, as long as you’re meeting minimum monthly repayments.
  • Fees. Personal loans usually charge monthly service and application fees, while lines of credit usually charge annual service fees. However, lenders for both personal loans as well as lines of credit may charge a variety of other hidden fees. Make sure you’re aware of all fees for any option you’re considering.
  • Borrowing amounts. With a personal loan, you’re given a lump sum of money that you have to pay back in full. Lines of credit come with a borrowing limit instead — similar to a credit card. This means you can take what you need, when you need it.
  • Costs. Being able to borrow only what you need can make lines of credit less expensive. This is because you’re on the hook for less money, and therefore less interest — even if your rates are higher than a personal loan.

Compare your loan options

Name Product Interest Rate Loan Amount Loan Term Fees Credit Score Link
Loans Canada Personal Loan
Secured from 2.00%, Unsecured from 8.00% to 46.96%
$300 - $50,000
3 - 60 months
No application or origination fees
Min. credit score: 300
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More Info
An online broker with the largest lender network in Canada. Get matched with lenders for free through one quick application regardless of your financial situation.
Fairstone Personal Loan (Unsecured)
26.99% - 39.99%
$500 - $20,000
6 - 60 months
None
Min. credit score: 560
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More Info
An online lender with a team dedicated to professional service. Get an unsecured loan within 24 hours. No prepayment fees.
Mogo Personal Loan
5.90% - 46.96%
$200 - $35,000
6 months - 5 years
NSF fee - $20 - $50
Min. credit score: 540
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More Info
An online lender who aims for a hassle-free process through same-day approval and funding. Get a loan fast and track your credit score for free.
Loan Away Personal Loan
Loan Away Personal Loan
19.90% - 45.90%
$1,000 - $5,000
6 - 36 months
None
Min. credit score: 300
Go to site
A lender that approves loans in as little as 20 minutes. Get affordable monthly repayments with any credit score.
LoanConnect Personal Loan
Secured from 1.90%, Unsecured from 9.90%-46.96%
$500 - $50,000
3-60 months
No application or origination fees
Min. credit score: 300
Go to site
More Info
An online broker who helps educate clients towards better finances. Get approved by different lenders in as little as 60 seconds with any credit score.
Fairstone Personal Loan (Secured)
19.99% - 23.99%
$5,000 - $50,000
3-10 years
Varies by province
Min. credit score: 560
Go to site
More Info
Use your home equity to borrow up to $50,000. Get flexible repayment options and a long loan term.
LendingMate Personal Loan
43% (British Columbia and Ontario) and 34.90% (Quebec)
$2,000 - $10,000
1-5 years
None
Min. credit score: 300
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More Info
An online lender specializing in cosigned loans. Cosigner is required for application. Get a loan fast with bad credit and no credit check.
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Name Product Interest Rate Loan Amount Loan Term Fees Credit Score Link
Cash Money Line of Credit
46.93%
$100 (in store), $500 (online) - $10,000
Open-ended
Establishment fees, missed payment fees and default penalty fees may apply.
Min. credit score:
Go to site
More Info
Cash Money offers line of credit loans up to $10,000 for AB, BC, NS, ON and SK residents. (Residents of MB or NB can apply in-store only.)
LendDirect Line of Credit
19.99% - 46.93%
$100 - $15,000
No end dates
None
Min. credit score: 560
Go to site
More Info
Borrow up to $15,000, based on your income and credit history, with a line of credit from LendDirect.
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Benefits of personal loans and lines of credit

Personal loan

Personal loans provide your funds upfront and stipulate an agreed time period to pay back your loan (called the “loan term”). Interest is charged on the entire duration of your loan term and on your entire loan amount. In general, most personal loans involve the following features:

  • Upfront lump-sum. Once the lender approves your application and you agree to the loan contract, you’ll receive all your funds at one time.
  • Interest rate. Your lender will charge either a fixed interest rate that won’t change over the term of your loan, or a variable interest rate which can rise or fall depending on market rates.
  • Term. The period over which you’ll be making repayments to fully pay back the loan is called the loan term. It usually ranges from one to seven years.
  • Discount rates. Your lender may offer you a limited time discount if you take out a significant loan amount.
  • Flexible repayments. Depending on your lender, you may be able to choose exactly how and when you’ll be making monthly repayments.

Line of credit

Lines of credit have a maximum credit limit, and you’ll only be charged interest on the funds you actually use. Repayments are made monthly, but there’s no fixed “term” for a line of credit. As long as you’re making your minimum monthly repayments, your funds will always be available to you.

  • Option to increase maximum credit limit. Your lender may provide an option to increase the maximum credit limit in line with your specific needs.
  • Flexible withdrawals. You’ll be able to withdraw funds from your line of credit whenever you like, as long as it doesn’t exceed your maximum credit/daily limit.
  • No fixed repayments. As long as you’re making a minimum required monthly payment (a percentage of withdrawn funds), there’s no fixed repayment amount.
  • Interest rate. Interest is paid monthly and is only charged on the amount you borrow.

Which borrowing option is better suited for you?

Lines of credit are helpful for those who require an ongoing source of funding to be used when they see fit. Since lines of credit are revolving, you won’t be charged on funds you don’t withdraw, making them an excellent option for backup or emergency sources of funding.

Since interest rates could get expensive for lines of credit, they are suited to those looking for flexibility with their credit and an ongoing source of funds for purchases such as paying bills, consolidating short-term debt and shopping.

Ultimately, a personal loan is suited to someone who wants structured repayments and an initial lump sum paid to them at the beginning of the loan term. A personal loan is appropriate for those looking to make large purchases such as paying for a wedding or car using that lump sum. Also, a personal loan can be beneficial for those looking to consolidate a large amount of debt.

Frequently asked questions

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