Loan vs. Line of Credit: What's the Difference?

Personal loan vs. line of credit

Personal loans give a lump sum with fixed payments. Lines of credit are reusable with variable costs. Choose fixed for predictability; choose a line when you need staged access and can manage discipline.

Quick comparison

Feature	Personal loan	Line of credit
Access	Lump sum upfront	Draw as needed up to a limit
Rate	Usually fixed	Often variable; can change
Payment	Fixed installments; set payoff date	Often interest-only minimums; payoff depends on you
Best for	One-time expenses, consolidations	Ongoing or unpredictable needs, staged projects

Choose a personal loan when

• You want a predictable payment and payoff date.
• You are consolidating debt and want to avoid new revolving balances.
• You prefer a fixed rate and no temptation to re-borrow.

Choose a line of credit when

• You have irregular expenses or income and need flexibility.
• You want to borrow in phases (e.g., projects) rather than all at once.
• You can commit to paying more than interest-only to avoid lingering balances.

Managing costs and risks

• For lines, ask about rate caps, draw fees, inactivity fees, and how often rates adjust.
• Set your own payoff schedule and automate payments above the minimum.
• Avoid treating a line like extra income; limit draws to planned needs.

FAQs (top questions)

Is a line of credit cheaper than a loan?

Not necessarily. Lines can have variable rates and fees. Compare APR, fees, and how long you will carry a balance.

Do lines of credit affect credit utilization?

Yes. They are revolving; high balances can raise utilization and impact scores.

Can I fix the rate on part of a line?

Some lenders let you lock segments at fixed rates. Ask about fees and terms.

Do personal loans improve utilization?

They can by moving revolving card balances to an installment loan, but only if you avoid running up cards again.

Can my line be reduced or closed?

Yes. Lenders can lower limits based on credit changes. Maintain good standing to reduce that risk.

Internal Links

• See loan vs. flexible loan for more on variable payments.
• Review interest rates explained before choosing fixed vs. variable.
• Plan payoff with repayment strategies.

External resources

• CFPB on comparing revolving credit

Conclusion

Pick a personal loan for fixed payments and a firm payoff date. Choose a line of credit if you truly need flexible draws and can pay it down aggressively to avoid long-term, variable-rate costs.