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If you’re looking to borrow money and cover expenses, you have several options, including personal loans and personal lines of credit (PLOC). There are several similarities between them. For example, they’re both typically unsecured, which means you don’t need to use an asset as collateral.
However, there are key differences, including how you access funds, that can help shape your decision.
Let’s take a deeper look at how personal loans and personal lines of credit compare.
A personal loan lets you borrow a lump sum that you repay in fixed installments. Funds from a personal loan can be used for almost any purpose, from repaying a debt to making a big purchase. (However, lenders can limit how funds may be used.) Personal loans usually have a fixed interest rate and term, which means borrowers will make the same payment for the loan term. That can make it easier to account for a personal loan in your budget.
Banks and other lenders provide loans based on eligibility criteria, including income and creditworthiness. These factors may also impact the interest rate the lender offers you.
A personal line of credit is a revolving credit account — similar to a credit card — that lets you continually borrow funds, up to a specific credit limit.
A PLOC typically lets you borrow funds for a fixed amount of time, called the draw period. You may withdraw as much as your credit limit will allow during the draw period. During the draw period, your payments can replenish your credit limit, and you must make minimum payments. After the draw period ends, you typically enter repayment.
Personal lines of credit usually have a variable interest rate that may fluctuate with market changes. In general, your eligibility for a PLOC is based on factors like creditworthiness and income.
Here’s how personal loans and PLOCs compare.
One of the key differences between PLOCs and personal loans is how you receive your funds. With a personal line of credit, you can access funds as needed, up to the credit limit, during the draw period. Personal loans, by contrast, allow you to receive a single lump sum upfront.
While PLOCs typically have variable interest rates, personal loan interest rates are typically fixed. This means that while PLOC payments can fluctuate with the market (for better or worse), personal loan payments are typically fixed for the entire repayment term.
When you open a PLOC, you generally start with a draw period, which typically lasts 2 to 5 years. If you borrow funds during the draw period, you do have to make minimum payments. When the draw period ends, you enter repayment. Repayment can last up to 10 years.
Personal loans, by contrast, require you to start making regular payments, including the principal and interest, until the repayment term ends and you’ve paid off the loan.
PLOC fees depend on the lender, but may include:
Personal loan fees also vary by lender. For example, some lenders may charge:
You should note, however, that some lenders (including Citi) don’t charge any personal loan fees.
Every lender has its own qualification requirements, but common factors for both personal loans and PLOCs include:
In general, a personal loan can be the right move when you’re seeking a lump sum payment that you can use as needed. Since you only receive the funds once, it’s usually better to use personal loans when you know exactly how much money you need and how you intend to spend it.
Citi offers flexible, fee-free personal loans to qualified applicants. If you think you could benefit from a Citi® Personal Loan, apply online today.
On the other hand, a PLOC can be helpful if you’re still figuring out how much money you will require or if you need funds for ongoing expenses. It offers the flexibility to continually borrow, up to your limit, during the draw period.
Either way, keep in mind that applying for a PLOC or personal loan generally means adding a hard credit inquiry to your credit file. That can have a small, temporary impact on your credit score.
Using pre-qualification can help you narrow down your options without harming your credit. If available, it can help you understand if you’re likely to qualify for a personal loan or line of credit, and if so, what your terms might look like. Then you can apply and, if approved, start putting those funds to good use.
This article is for educational purposes. It is not intended to provide legal, investment, or financial advice and is not a substitute for professional advice. It does not indicate the availability of any Citi product or service. For advice about your specific circumstances, you should consult a qualified professional.
