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

When you need extra money to cover expenses, a Line of Credit or a loan could be your solution. Both options can get you the money you need when you need it most, but there are several differences between them.

What is a Line of Credit?

A personal Line of Credit is a revolving credit account from which you can draw money up to a specified amount.

A Line of Credit can be a good option because you’ll only pay interest on the amount you withdraw, not on the entire line. This gives you plenty of flexibility to tap into funds for any expense, including vacations, home renovations, consolidating debt, or paying bills.

How does a Line of Credit work?

Here's a quick rundown of how a Line of Credit works and what you can expect when you open one:

Borrowing amount

Just like a credit card, a Line of Credit comes with a credit limit. Also known as your borrowing amount, your approved borrow limit will be based on your current income, current debts, and overall finances. Some lenders may even look at your credit score and credit history.

Once a lender looks at each of these factors and considers your ability to repay, they may approve you for a certain borrowing limit. Upon approval, you’ll have the flexibility to borrow as much or as little as you’d like up to that set limit.

Interest rate

With a personal Line of Credit, you’ll pay interest on the amount of money you withdraw rather than your entire limit. 

For example, if you’re approved for $2,000 but only take out $500, you’ll only be charged interest on the $500.

Repayment schedule and loan term lengths

A Line of Credit has recurring billing cycles. During each cycle, you'll receive a billing statement that includes the amount you withdrew during that billing cycle, plus any payments, interest, and charges.

It's important that you make a payment by the due date. If this is a struggle for you, you might consider enrolling in autopay to help you avoid any late payments and penalties.


The fees you can expect to pay will depend on the amount you withdraw, your lender, and the state you live in.

>RELATED: Find a Loan in Your State

Types of Lines of Credit

Here are a few examples of Lines of Credit:

  • Personal Line of Credit
  • Home Equity Line of Credit (HELOC)
  • Unsecured Line of Credit
  • Secured Line of Credit
  • Business Line of Credit

What is a loan?

A loan is a lump sum of money that you can borrow from a lender and pay back with interest. Loans can either be unsecured or secured. A secured loan is secured by an asset you provide as collateral, such as a car title, whereas an unsecured loan is not.

The amount of money you can borrow with a Personal Loan may depend on your creditworthiness, the value of any collateral, and your ability to repay.

How does a loan work?

If you decide to apply for a particular type of loan, keep these things in mind:

Borrowing amount

After a lender approves your loan application, they will offer you a fixed loan amount based on your ability to repay.

Once you’ve signed the loan agreement and acknowledged the terms, you’ll receive the loan funds in one lump sum. Depending on the lender, this amount may be deposited directly into your checking account, loaded onto your debit card, or offered in cash.

Interest rate

When approving you for a loan, the lender will decide on a fixed interest rate that’s based on your credit history and income. Remember, you’ll need to pay interest charges on your entire loan amount.

While good credit may increase your chances of landing a lower interest rate, you can still get approved for a loan with bad credit.

Repayment schedule and loan term lengths

A loan comes with a fixed term and repayment period, which you’ll find detailed in your loan agreement.

While some loans are shorter and must be repaid within a couple of weeks or months, others can last for several years. In general, the shorter the term, the higher your monthly payment.


The lender and loan type you choose will determine the fees you’ll have to pay. Some of the most common loan fees include application fees, origination fees, and late payment fees.

Types of loans

Here are some of the most common loans:

  • Payday Loans
  • Installment Loans
  • Title loans
  • Student loans
  • Home equity loans

Loans vs. Lines of Credit

Here's a quick look at the similarities and differences between a loan and a Line of Credit.





Lines of Credit


Borrowing Amount


A lump sum of money upfront.


As much or as little as you need (up to a certain credit limit).


Interest Rate


Set at origination and based on your ability to repay.

Interest assessed on the full loan amount.


Set at origination and based on your income and credit.

Interest is only assessed on the amount you withdraw.


Repayment Schedule and Loan Term Lengths


Fixed, based on agreed-upon schedule. 


Repayment is based on the activity (withdraws and payments) on your account.




Typically, a fixed amount based on the loan amount.


Determined by your lender and the activity on your account.

Do I need good credit to get a loan or Line of Credit?

Having good credit can make it easier to get approved for traditional financing options. Good credit may also result in lower interest, lower monthly payments, and the ability to take out a larger sum of money.

Still, you may be able to qualify for a loan or Line of Credit – regardless of your credit score – when you choose a lender like Advance America.

>RELATED: How to Improve Your Credit Score

Can I get a loan or Line of Credit online?

It depends on your lender and the loan options available in your state. At Advance America, many of our customers can apply for a loan from the comfort of home or on the go.

Whether you apply online or in person, if you’re approved before 10:30 AM EST, you can get your funds deposited directly into your checking account the same day!

How to choose between a Line of Credit and a loan

If you already know how much money you need to borrow, a Personal Loan may make sense. With a Personal Loan, you borrow a certain amount at once, allowing you to cover a pressing expense.

On the other hand, if you know you’ll need ongoing access to funds, such as with a home improvement project, a Line of Credit can be a good way to go. It can give you the flexibility to borrow smaller amounts as needed, which can help you save interest over time. 

Before applying for either a Line of Credit or a loan, make sure you choose the option you can afford to repay based on your financial situation.

Apply for a Line of Credit or loan at Advance America

Whichever option you choose, consider applying at Advance America. We offer Lines of Credit and Personal Loans with convenient repayment options and transparent rates and fees.

Visit us in person at your nearest Advance America store or apply online now.

About the Author

Jalin Coblentz has contributed to Advance America since 2023. His experiences as a parent, full-time traveler, and skilled tradesman give him fresh insight into every personal finance topic he explores.

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Since 1997, Advance America has helped millions of hardworking people with a variety of financial solutions including Payday Loans, Online Loans, Installment Loans, Title Loans and Personal Lines of Credit.
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