Difference between a personal line of credit and a personal loan


In case we have to borrow some money to face any kind of expenses or payments and we cannot ask our family or friends to lend us a hand, we should get well informed about bank products and lendings, which type our bank offers and which one suits us best according to our situation. In this article we help you know the difference between two types of bank products: the personal line of credit and the personal loan, which may seem the same, but we will see they are not.


Lines of credit

On the one hand, a personal line of credit consists of a flexible loan which a bank can give to a person or a business. This personal credit offers a limited amount of money, which is specified and agreed with the bank, that a person can make use of and then repay over a fixed period of time. Just as any other loan, a line of credit implies getting charged with interests for the money we have borrowed. It requires an acceptable credit as well as a healthy bank account.


It can be used as a source of funds in emergency situations, when there will take place repeated cash outlays or when we require a large cash deposit if a vendor does not accept credit cards.


Although, as any other bank product, lines of credit imply interests and consequences we have to know. We have to bear in mind that we will have to pay all the money back, and if the financial institution finds us not capable to repay that amount of money for different reasons, we will not be able to borrow that money and we will have to consider other solutions. Also, we cannot forget we will be charged with interests as soon as the money is borrowed.


To sum up, the main features of a credit line are the following: the personal line of credit is reusable and once we have been approved by the bank, we can make use of any portion of it at any time; the interest rate can vary; and no matter how much money we borrow, since all of it will be plus the interest rate will have to be repaid by the end of the term agreed.



If we have to face a big outlay or we need to make a considerable, one-time purchase with the option of an interest which can be fixed or variable, the personal loan will be the financial product which will be the most appropriate for us.


Some advantages of loans are that we can borrow large amounts of money, we can choose the payment options which suits us best (weekly, fortnightly, monthly, etc.), we can get it as a lump sum and we can choose between a fixed interest rate or a variable one.




If we need to borrow some money from the bank we will have to be extremely careful and read the terms of the financial product we have chosen. We will avoid getting in trouble if we have understood all we have read and we are clear about the interest rate and the conditions.


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