Personal loans and personal lines of credit are both helpful tools to cover large expenses. These financing options have similar benefits, like no collateral requirements and low rates for well-qualified borrowers, but deciding which is right for you comes down to how you prefer to receive and repay the funds. Learn the similarities and differences between personal loans and personal lines of credit to determine which is right for your plans.
Personal loans and personal lines of credit are typically unsecured, meaning you don’t have to pledge an asset as collateral in order to borrow. It also means the lender will rely mostly on your credit, income and existing debts to determine whether you qualify. When you apply for either financing option, the lender will pull your credit report to examine your creditworthiness and how you handle existing debts.
Applicants with good credit and low debt-to-income ratios have the best chances of qualifying and getting the lowest rates. “The qualifications for both loan types are determined by an individual’s credit experience, employment stability and ability to repay the debt,” Jean Hopkins, director of consumer lending at WeStreet Credit Union in Tulsa, Oklahoma, said in an email interview. Banks and credit unions offer personal loans and lines of credit, while online lenders offer personal loans, but usually not credit lines.
Qualified applicants may be able to borrow up to $100,000 with either type of financing. With both option.