Deciding between a personal line of credit versus a personal loan or credit card will depend on your individual circumstances and financial goals. If you don’t know how much you need to borrow, a personal line of credit can be a more flexible option compared to other types of loans.
Personal line of credit vs. personal loan
A personal line of credit and personal loan ultimately work the same way — a lender lets you borrow funds based on certain terms, and you can use those funds as you need them. The difference between a personal loan and a personal line of credit is essentially the terms that come along with each, such as the repayment period and interest rate.
A personal loan can be a better choice than a line of credit if you have a fixed expense, such as a new roof, since you know exactly how much you’ll need. However, if you want more routine access to a credit line for an ongoing expense, a personal line of credit might be a better fit.
Personal line of credit vs. credit card
Personal lines of credit are similar to regular credit cards as they both have a credit limit, a monthly bill, a minimum payment due, and require interest paid based on your current balance. However, a main difference is that credit cards are meant for more regular use. You can use your credit card for everyday expenses, such as food, gas, or to pay bills. But you wouldn’t want to use a personal line of credit for those types of purchases, if possible, since the higher interest rates can end up costing you more in the end.
Although it’s good practice to keep your credit utilization below 30%, using credit cards for a huge or sudden expense isn’t always ideal, so that’s where a personal line of credit can help cover the cost. Another difference between a personal line of credit and a credit card is how you access your available credit. A line of credit may require special authorization, whereas you can usually use your credit card whenever you want, as long as you haven’t reached your limit.
