July 28, 2025
An unexpected expense, like a pricey trip to the emergency room or a broken appliance that is out of warranty, can cause a lot of financial stress. If you have an emergency fund, you may be able to turn to that to cover the costs. But if you don’t have savings — or if it is not enough to cover the expense — you may be wondering what your options are.
A personal loan or line of credit can help you make a big purchase, cover surprise bills, and may improve your credit score. But while they sound similar, there are several factors that set these two financial products apart. We will cover the differences between a personal line of credit and a personal loan, and how you can determine which of these best suits your needs.
Both personal loans and lines of credit offer individuals the opportunity to borrow money for any purpose. A loan or line of credit is an agreement between you (the borrower) and a lender. The lender gives you money, and you agree to pay it back with added interest and/or fees. This is an ideal way to spread the cost of a large expense over a longer period if you are unable to pay with cash upfront.
When you get a personal loan, you receive a lump sum of cash, then pay it back on a regular payment schedule. A personal line of credit functions more like a credit card, which you can spend as needed and pay back as you go.
A personal loan is a type of installment loan. This means that, when you are approved, you get the entire loan amount deposited into your bank account and agree to pay it back in installments. You can spend this sum just like cash. A personal loan can be used for any purpose, such as a home improvement project, auto repairs, and even consolidating debt.
When you are approved for a personal loan, your lender will share terms and conditions with you, including an APR — the percentage of interest you will pay over the life of your loan — and a term. The term, which is a set number of months, is how long you have to repay your loan. If, for example, you borrow money on a 12-month term, you will make payments over the course of a year to repay your loan and the interest it accrues. With most personal loans, the interest rate is fixed, meaning it will not change.
Some loans require collateral to “secure” the debt and ensure that you will repay it. Common types of secured loans are mortgages and auto loans — in these cases, your home or vehicle is the collateral. If you fail to make payments on these loans, the collateral can be taken by the lender to cover your debt. You do not own these assets outright until you pay off the debt completely.
A personal loan is an unsecured loan, meaning the lender does not hold collateral. It is still important that you make all payments on time for a personal loan — missed payments will likely be reported to the credit bureaus, which may negatively affect your credit score for up to seven years.
When you apply for a personal loan, lenders will ask for personal and financial information to help make a decision. This includes your legal name, date of birth, Social Security number, employment and income information, and more. Lenders review this information and use it to determine the loan amount, APR, repayment term, and other conditions of the loan. If you have bad credit, you may still be approved for a personal loan, which can help you improve your credit score by showing that you can manage debt and make payments on time.
A personal line of credit is a type of revolving credit. Similar to a credit card, a line of credit comes with a limit. You can withdraw cash up to that limit whenever you need, then pay it back over time. Like a personal loan, a personal line of credit can be used just like cash, so you are not limited to spending it on one item or transaction.
Rather than a lump sum payment, when you are approved for a personal line of credit you are given a credit limit and can withdraw all or part of that amount as needed during the draw period. You pay back only what you have withdrawn, plus interest and/or fees. Because a personal line of credit is revolving, you can draw on it again and again as you need it, up to your credit limit. For example, if your credit limit is $1,000 and you have withdrawn $500 and paid it back in full, you can withdraw up to $1,000 again. If you pay that $1,000 back, you can draw again — as much as needed.
Personal lines of credit are unsecured debt, meaning your lender cannot hold collateral to ensure that you repay your loan. However, it is still important to repay your line of credit on time. Missed payments are reported to the credit bureaus and may stay on your credit report for up to seven years.
If you are looking to get a personal line of credit, the first step is to find a lender and submit an application. Lenders ask for personal and financial information to review your credit history, income, and expenses. They use this to determine terms and conditions for your personal line of credit, including credit limit, interest rate and/or fees, and more.
A personal line of credit or personal loan can be used for many expenses, such as buying an engagement ring, paying down high-interest debt, or funding home repairs. However, in some cases, you might consider other loan types to meet your financial needs.
Whatever your financial situation, a Lendly loan product to help you move forward. Click here to apply and get started.
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