What’s the Difference Between a Line of Credit vs. Loan?

When you need extra money to cover expenses, you may need to decide between a Line of Credit and a loan. Both options can get you the money you need when you need it most, but there are several differences between them.

If you're curious and want to know more about these two money lending options, you're in the right place.

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.

Lines 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 Lines of Credit work and what you can expect when you open one:

Borrowing amount

Just like credit cards, lines of credit come with credit limits. 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

Lines of Credit have 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.

Fees

The fees you can expect to pay will depend on the amount you withdraw, your lender, and the state you live in. Visit our Line of Credit page to learn more about our rates and terms.

Types of Lines of Credit

Here are a few examples of personal 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 Personal Loan?

A Personal 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 Personal Loan work?

If you decide to apply for a Personal 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 Personal 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 Personal Loan with bad credit.

Repayment schedule and loan term lengths

A Personal 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.

Fees

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

Types of Personal Loans

Here are some of the most common Personal Loans:

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

What are the differences between Personal Loans vs. Lines of Credit?

Here's a quick look at the similarities and differences between Personal Loans and Lines of Credit.

Do I need good credit to get a Personal 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 Personal Loan or Line of Credit – regardless of your credit score – when you choose a lender like Advance America.

Can I get a Personal 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 do I apply for a Personal Loan or Line of Credit?

Here’s what you need to do to apply for a Personal Loan or Line of Credit:

1. Choose a lender and loan option

Whether you prefer a Personal Loan or a Line of Credit, it's important to compare your options. Research the different loan types, the fees and interest rates involved, and what customers are saying about the lender you’re considering.

2. Gather all necessary documents

Next, gather all the information you need to fill out your application. These items might include your:

• Government-issued ID
• Bank account number for direct deposit
• Proof of income
• Social Security number

3. Submit your application

Once you have all the documents and information you need, you can fill out and submit your Personal Loan or Line of Credit application. When you apply with Advance America, you'll find out if you're approved within minutes.

4. Receive your funds

If approved for a loan or Line of Credit, it won’t take long to receive the funds you need. Many lenders, including Advance America, offer an instant approval decision and same-day funding, so you may get the cash as soon as the same day you apply or within 24 hours.

How do I choose between a Line of Credit vs. 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 Personal Loan, make sure you choose the option you can afford to repay based on your financial situation.

Apply for a Line of Credit or Personal 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.