May 08, 2024

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If you’ve been looking for a loan, you may have come across references to two options: a personal line of credit and a personal loan.

Knowing the differences may help you save money, so keep reading and learn how to decide whether a personal line of credit or a personal loan is right for you.

What is a personal line of credit?

A personal line of credit is a type of unsecured loan. It is a set amount of money that a lender allows you to borrow. The money is not deposited into your account. Instead, you can access the funds on an ongoing basis through a credit card or other means. You have the option to borrow these funds as needed and repay them with interest over time. With this type of revolving loan, the time you take to repay the loan (plus interest) is generally up to you, with minimum monthly repayments typically required.

With a line of credit, you might pay off multiple debts or use the funds for practically any purpose.

Other types of lines of credit may either be secured or unsecured. A secured line of credit, such as a home equity line of credit or auto loan, requires that you provide collateral to the lender. An unsecured personal line of credit requires no collateral.

What is a personal loan?

A personal loan is an amount of money paid to you as a lump sum, which you then pay back with set regular monthly payments.

The funds may be used for many things—including:

Once you’re approved for a personal loan, the lender issues you the money, which you pay back over your agreed-upon repayment term. At Discover® Personal Loans, for example, you can choose how long you’d like to repay your loan—from 36 up to 84 months, depending on what works with your budget.

Personal loan vs. line of credit: What’s the difference?

Interest rates

The interest rate you are charged when borrowing money either for a line of credit or personal loan is typically determined by factors such as your credit history, application information, and the repayment term you select.

A line of credit may have a variable interest rate, meaning the interest rate and payment amount might change from month to month.

Most personal loans charge a fixed interest rate. This allows you to plan and budget knowing you will have one set regular monthly payment.

Access to credit vs. receiving a lump sum

With a line of credit, you may spend up to the maximum amount you are allowed to borrow any time you need it. The money you borrow does not go into your bank account. It is usually accessed through a separate account linked directly to the line of credit. This account acts like a credit card or a separate checking account.

With a personal loan, you receive one lump sum. And with a Discover personal loan, you choose where the money goes. You can send money straight to many creditors or to your bank account. After you accept the terms of your loan, funds can be sent as early as the next business day.


With a line of credit, there may be additional costs, such as origination or transaction fees. You should review any rates and fees associated with a line of credit. Certain additional costs might change the amount you repay from month to month.

Some personal loan providers do charge origination or processing fees. You may save money by looking for a lender like Discover Personal Loans that charges no fees of any kind as long as you pay on time.

Discover also allows you to check your rate and estimate your monthly payment with no impact to your credit score.

Check Your Rate

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