Compare personal loans vs. lines of credit

Choose between getting your funds all at once or withdrawing them as you need.

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While both personal loans and lines of credit allow you to borrow upwards of $100,000, how you receive your funds and make repayments differs widely. A line of credit may be better suited for ongoing expenses, while a personal loan might be ideal for making a large purchase all at once.

Personal loans vs. lines of credit

Personal loanLine of credit
How you receive your fundsReceive all your funds up front in one lump sumWithdraw funds from your line of credit whenever you like, as long as it doesn’t exceed your maximum credit or daily limit
Interest ratesFixed or variable rates charged on the total amount of your loanFixed or variable rates, though you’re only charged interest on the amount you withdraw
Terms1 to 7 yearsDraw period from 4 to 10 years

RepaymentsFixed monthly repayments over a set number of yearsAs long as you’re making a minimum required monthly payment, there’s no fixed repayment amount
FeesOrigination feeMonthly or annual service fee
Discount ratesPotential rate discount for signing up for autopayPotential rate discount for signing up for autopay

6 main differences between personal loans and lines of credit

The main difference between a personal loan and line of credit is how you receive the funds. With a personal loan, you’re given one lump sum that you have to repay — plus interest — over a fixed term. But with a line of credit, you’re given access to a credit account that you can draw from as you wish up to a set limit. You only pay interest on the amount you withdraw.

Here’s a more in-depth look at how personal loans and lines of credit compare:

1. 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 come with a draw period that typically lasts anywhere from four to 10 years. You can withdraw funds from your account at any time during that period. If it’s a revolving line of credit, the funds you borrow become available again after they’re repaid — plus interest.

2. Repayments

Both involve monthly repayments. However, personal loans have fixed monthly repayments, while lines of credit typically come with a minimum monthly payment based on the previous balance, amount drawn, accruing interest and other factors.

3. Time of disbursement

With personal loans, your lender will disburse your funds up front as soon as you agree on 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.

4. Fees

Personal loans may charge origination fees, while lines of credit usually charge monthly or annual service fees. However, lenders for both personal loans as well as lines of credit may charge a variety of other fees, so read your contract carefully before signing.

5. 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. However, you may have the option to increase your credit limit to meet your specific needs.

6. 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. This can result in lower costs, even if your rates are higher than a personal loan.

Compare your personal loan vs. line of credit options

Updated December 7th, 2019
Name Product Filter Values APR Min. Credit Score Max. Loan Amount
5.95% to 35.99%
Fair to excellent credit
$100,000
Get personalized rates in minutes and then choose an offer from a selection of top online lenders.
3.84% to 35.99%
Good to excellent credit
$100,000
Get loan offers from multiple lenders at once without affecting your credit score.
6.98% to 35.89%
600
$50,000
Affordable loans with two simple repayment terms and no prepayment penalties.
3.84% to 35.99%
550
$100,000
Get connected to competitive loan offers instantly from top online consumer lenders.
34% to 155% (Varies by state)
No minimum
$10,000
Check eligibility in minutes and get a personalized quote without affecting your credit score.
3.99% to 35.99%
450
$100,000
Quickly compare multiple online lenders with competitive rates depending on your credit.
6.49% to 17.99%
650
$25,000
With over 80 years of lending experience, this credit union offers personal loans for a variety of expenses.
6.95% to 35.89%
640
$40,000
A peer-to-peer lender offering fair rates based on your credit score.
5.99% to 17.88%
680
$100,000
A highly-rated lender with competitive rates, high loan amounts and no fees.

Compare up to 4 providers

Which borrowing option is better suited for you?

Lines of credit are helpful for those needing ongoing sources of funding to be used when they see fit. You won’t be charged on funds you don’t withdraw, making them an excellent option for backup 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 can be used for a variety of purposes, from planning a wedding to going on vacation. And it can also be appropriate for those looking to consolidate a large amount of debt.

Compare personal loans to even more borrowing options

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Personal loans vs. home equity lines of credit

Bottom line

Both personal loans and lines of credit can give you access to cash to cover a wide variety of expenses. If you like the stability of fixed monthly repayments and need to borrow a large amount of cash all at once, then a personal loan might be right for you. But if you prefer to only borrow what you need — when you need it — and want flexible monthly repayments, then a line of credit may be better suited for your needs.

Learn more about how personal loans work or get the ins and out of lines of credit with our guides.

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2 Responses

  1. Default Gravatar
    CarlJanuary 11, 2018

    What is a FLEXIBLE line of credit

    • Default Gravatar
      ArnoldJanuary 12, 2018

      Hi Carl,

      Thanks for your inquiry

      The option to have a revolving line of credit that lets you access your funds as and when you need to. This is an example of a flexible line of credit.

      Hope this information helps

      Cheers,
      Arnold

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