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what are the differences between a line of credit and a personal loan?

Nick D asked:

I would need 10 000$ to buy a used car. I have only 455$ credit card debt, my credit score is excellent. Can you tell me the advantages/disadvantages of a line of credit and a personal loan. I asked my bank adviser and he told me to take a personal loan, but why? I was a little bit skeptic.
Asked on: 2012-10-19 19:41:17


  1. Ryan D says:

    a line of credit can only be taken if you own a home (or perhaps a 200k car), you can not take a line of credit without a house as collateral. You can take a personal loan using just your credit history, and job status.

  2. Ryan says:

    For a vehicle you would want to take out installment debt, so a personal secured loan would be your best bet. Shop around and take advantage of a good credit score, but if you have a thin history (meaning not a lot of credit history) you may get your best deal at a credit union.

  3. Rick L says:

    The difference is quite simple. A Line of credit is a preapproved dollar amount that you can apply for and then set aside. You make no payments and it costs no inerest till you actually use it. This can come in handy when car shopping. Because yohave more power to negotiate. You use the LOC (Line of Credit) jut like a checkbook. You use only what you need. Typically an LOC requires collateral and personal loans do not

  4. curtisports2 says:

    Ryan is not quite correct. There are personal lines of credit that are not secured by collateral, but personal lines of credit only go to those with long, superlative credit histories.

    The main difference between a line of credit and a personal loan is that the loan is a one time deal. You pay down the debt until it’s gone and that’s it. A line of credit doesn’t necessarily mean that you have borrowed money. Money is available for you to borrow, up to the credit limit, and as soon as any of the principal is repaid, it becomes available to borrow again. Loans last for a fixed term and lines of credit can last for years. Most lines of credit ARE secured by one’s home, and that’s the main disadvantage of them. If you are undisciplined, you can get in trouble and lose your house. If you default on an auto loan, you’ll lose the car. If you default on an unsecured personal loan, you can be sued and get a default judgement against you, but the creditor can’t touch your house. Disadvantages of personal loans is that they usually have higher rates than lines of credit.

  5. Cowboy says:

    A line of credit is a type of loan mainly used for business. The bank will use whatever collateral you have as a basis for the max amount of the loan. In a line of credit you pay a monthly payment on only the interest of the money you borrow. At the end of the year you have to pay back all the money you borrowed to reset the line, and then let it rest for 30 days before using it again.

    A personal loan will be the amount you need ($10,000)with a set interest rate and a set length of loan. It can also be a “secured” or “unsecured” loan type. Secured means that you would, in this case, use the car as collateral. Meaning that if you didn’t pay, they would repo it. Unsecured means they would use your good name and credit score. If you didn’t pay they would still come after you.

    Hope this helps.

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