Personal Loan or Personal Line of Credit

Personal Loans and Personal Lines of Credit (PLOC) can be useful tools for meeting your financial needs. While both offer flexible ways you can use the funds, each has its strengths and weaknesses. Here are four things to consider when choosing which option is best for you.

What is it for?

Personal Loans are distributed in one lump sum and are typically best for large, one-time expenses. Back-to-school costs, emergency purchases, paying off high-interest debt, and college tuition are a few examples.

In contrast, Personal Lines of Credit are revolving loans. They operate kind of like a credit card; you can use a little at a time, and only pay interest on the amount you have outstanding. This credit line is consistently available – once you pay off the money you have borrowed, the funds open up again.

A PLOC might be best if you aren’t sure how much money you will need to borrow or for how long. Supplementing irregular income, home improvements, and backup for when unexpected expenses arise are common PLOC uses.


What’s the Cost?

Remember, both of these options are loans that you’ll need to pay back over time. A Personal Loan has fixed monthly payments, making it easy to budget for. Monthly payments for a PLOC, though, will vary over time as your balance and interest rate change. You only pay on what you use, but that cost can be harder to plan for in your budget.

For example, if you are extended a $10,000 credit line and only use $2,000 of the money, you will only have to make payments on the amount you’ve used. If you have a Personal Loan, though, you make payments on the total amount of money borrowed…whether you’ve used the funds or not.


Can you Qualify?

Typically, getting approval for a Personal Line of Credit is harder than for a Personal Loan. Why? A PLOC is more flexible for the borrower, which comes with greater risk to the lender. That means your credit score, past behavior, and financial situation play an even bigger role than with a Personal Loan. If you have some credit score skeletons in the closet, it might be easier to be approved for a Personal Loan. You should talk to your Financial Service Representative to get advice for your situation.


Making the Decision

Remember, choosing the right loan means more than comparing interest rates. Terms, monthly payments, and qualifications can have a huge impact on your overall cost. If you have any doubts or questions about which option is best for you, give your Financial Service Representative a call, or stop by your nearest branch. We’d be happy to help you find the best solution.