Personal Loan Vs. Credit Line, What’s the difference?

There could be numerous reasons why you need to borrow money. It could be for the renovation of your home, pay for your debt or you might simply want to have that much-deserved vacation. Whatever reason it could be, it is very important to know and find the right borrowing option. Personal loan and credit line are two different methods of borrowing money. Each of these has their own advantages and disadvantages and choosing the best option for you should always be the priority.


Personal loan

Personal Loan

Personal loans are paid periodically and through consistent installments. A personal loan is offered as a lump-sum money. A full loan amount will be given to you upon approval and interest on these funds usually begin immediately. With a personal loan, a fixed interest rate is paid on the agreed period of time.

Credit line

Credit lines have borrowing limit that is extended to a customer. These funds can be borrowed again after repaying the money. With a credit line, you can borrow a specific amount right away but don’t expect to receive a large amount of money. Interest will only accumulate as soon as you purchase something against a credit line. Credit lines have more immediate and larger impacts when it comes to credit scores. Credit lines are very flexible because you could use it only if you really need the money.

Why Personal Loan may be Better

Interest rates of personal loan are much lower than a credit line. There is also more certainty when it comes to the amount you want to borrow and the payments due on the loan. Another great advantage of personal loan is that you know exactly the amount you are borrowing from the start and you know exactly the amount you need to pay each month. Credit lines have variable interest rates that is why you cannot be sure of the interest you have to pay. With credit lines, there is a great tendency to increase the amount you need to pay each month thus much easier to accrue debt. Personal loans are very predictable and can refrain you from borrowing too much.

Bottom Line

Personal loan and credit line are set up differently. It is important to know which borrowing option best suits your situation. Each has different pros and cons so make sure to pick the best option for your personal financial needs and situation and if you have bad credit and need a loan there are also other options available for you.