Personal Loan

Difference Between Personal Line of Credit and Personal Loan


Personal loans and lines of credit don’t need any security. The way they work is different, though. With a personal loan, you pay back the money you have borrowed all at once with monthly payments. On the other hand, a personal line of credit lets you borrow as much money as you need. You have to pay it back over time at a rate that changes.

A Personal Line of Credit vs. Personal Loans

A personal line of credit is a loan where you take out a particular amount for a specific period of time, which is termed a draw period. You can withdraw money from the balance, the same as with the credit card, and pay the interest generated on that particular amount.

General uses of personal lines of credit include

  • Home Renovation 
  • Overdraft defence
  • Crisis circumstances
  • Boosting inconsistent earnings 

Personal Loans

When you take a personal loan, you get a fixed amount of money and have to pay it back within a fixed time frame. The repayment amount is also set at the time of borrowing. Personal loans are not secured loans.

Similarities Between Personal Line of Credit and Personal Loan

Check the pointers given below to understand the difference between a Line of Credit and a Personal Loan:

  • When you apply for any of these loans, a proper background check is done. Your credit report will be looked at to see if you are eligible for a loan or not.
  • In personal loans and personal lines of credit both, you have to pay interest.
  • The basic requirements for a personal loan and a personal line of credit are the same.
  • They are a little less risky than other options, like home equity loans. 


Cash Distribution: A personal line of credit works more like a credit card. It always has a credit limit and adds interest to any debt that is still owed. Even though you can get cash, you still have to pay the minimum amount each month. On the other hand, a personal loan gives you the full amount all at once. After that, you will pay back the loan amount by making fixed monthly payments.

Higher interest rates: Both borrowers and lenders take a risk with personal lines of credit because the interest rates are higher.

Interest Rates

When you get a personal loan, you often have to pay interest on the money you borrow. Most of the time, the interest rate will be set. It means that the rate of interest will stay the same as it was at the time of taking the loan.

Interest rates on personal loans are mostly based on a person’s credit score and credit history. Average rates can be as low as a little over 4% for people with good credit. Those with bad credit can pay as much as 25% more.

You may have more freedom with lines of credit, but this usually comes with a higher interest rate. Also, unlike personal loans, the interest rate builds once the loan is approved. You should start paying interest on a line of credit as soon as you use any available cash. Also, interest rates on credit lines are unpredictable and can change.

How to Choose the Best Option?

Before choosing between a personal loan and a personal line of credit, you should figure out how much money you need. Each loan package has its benefits, it would be best for you to choose the one that best fits your needs.

A personal line of credit can be the best choice if you don’t know how much money you need to borrow. It works best for unpredictable costs, like an unexpected home repair or a medical emergency. Like with a credit card, you only pay interest on the amount of the credit limit that you use. Keep in mind that the interest rates on personal credit lines change over time. The possible interest charges and the monthly payment amount will change.

Personal loans, on the other hand, have fixed interest rates. It makes managing money easier because you know exactly how much you have to pay. Personal loans are often a good choice for large, one-time expenses.

 A personal loan Personal line of credit
Financing MethodInstalmentRevolving
Repayment TimeframeSix months to 60 monthsDepending on the circumstances, some can remain open forever.
Interest rate Fixed Variable 
Total Amount₹41338.75 – 4,131,360 ₹82,627.2 – 826,272
Qualifications neededA minimum credit score of 620. Verification of assets and income. Usually, debt to income is under 43%.Superior credit rating, verification of assets, and low debt ratio to income.
Fees They pay application fees and creation costs, and early repayment is penalized.They pay application fees, costs per year, and costs associated with exceeding their credit limit.

What Works Best

And one-time transfer to their preferred account, 

Clubbing credit card debt with a higher interest rate on expenses like medical and bills.
They are drawn from as necessary

Continuously ongoing projects, including home remodelling, Recurring expenses, such as student loan payments  And fees for emergencies.


Personal loans and lines of credit are both ways to borrow money, but they work differently. A line of credit gives you access to money all the time. On the other hand, personal loans give you a lump sum and a fixed monthly payment. Before choosing the best way to borrow money to pay off debt, be careful.

With personal loans and lines of credit, you can get money quickly, but they work differently. A line of credit is revolving credit you can borrow from as needed, but personal loans are given in one big sum.

It’s important to remember that both types of credit require timely payment. So, a good idea would be to make a rough schedule for paying back the loan and see if that can fit into your budget.

Visit the official website of Piramal Finance to understand the difference between a personal loan and a line of credit. You can also check out the various products and services they offer and read the informative blogs posted on their website.