A personal loan gives you a lump sum upfront with a fixed repayment schedule, while a line of credit gives you an approved limit you can draw from as needed, paying interest only on what you actually use. The right choice depends on whether you know the exact amount you need upfront or expect ongoing, variable borrowing needs.
Personal Loan
- Lump sum disbursed upfront
- Fixed rate and fixed payment schedule
- Best when you know the exact amount you need
- Simpler to budget around a single fixed payment
Line of Credit
- Draw funds as needed, up to your approved limit
- Interest charged only on what you've drawn
- Often a variable rate
- Best for ongoing or unpredictable borrowing needs
At a Glance
| Aspect | Personal Loan | Line of Credit |
|---|---|---|
| Disbursement | Lump sum upfront | Draw as needed |
| Interest charged on | Full amount from day one | Only the drawn balance |
| Rate type | Typically fixed | Typically variable |
| Best for | A known, one-time expense | Ongoing or unpredictable expenses |
The Verdict
Choose a personal loan when you know exactly how much you need and want a predictable payoff schedule. Choose a line of credit if your borrowing needs are ongoing or uncertain in amount, since you'll only pay interest on what you actually use.