Personal Loan vs Personal Line of Credit: What’s the Difference?

There are several solutions available for funding personal requirements. The most common options are personal loans and personal lines of credit. Even though they are both types of personal finance, there are several key distinctions between them that one should consider before choosing. Also, you should calculate personal loan EMI before applying for a personal loan.

Personal loan

A personal loan is an upfront quantity of cash obtained from a lender that is repaid with interest over a certain time frame. The borrower receives the loan amount in one lump payment and then repays it in set instalments over a predetermined term, usually between one and five years. In any case, you are advised to check the personal loan interest rate and calculate personal loan EMI before you choose any kind of personal loan.

Pros and cons of Personal Loan

The following table summarises the pros and cons of personal loans:

Pros	Cons
Fixed interest rates	High-interest rates
No collateral required	Origination fees
Quick access to funds	Prepayment penalties
Debt consolidation	Potential for overborrowing.

Another advantage of a personal loan is that you can calculate personal loan EMI. For successful repayment of personal loans, calculate a personal loan EMI before you choose one.  When you calculate personal loan EMI, you get to know the amount you have to pay in instalments. So, when you calculate personal loan EMI, you might repay the loan within scheduled instalments, which prevents you from becoming a defaulter. 

Personal Line of Credit

A personal line of credit is an adaptable type of loan that enables you to withdraw money when you require it. Consider it a credit card with a bigger credit limit and a cheaper APR. You can borrow money with a personal line of credit up to a predetermined credit limit, but, you have to pay interest on the amount you borrow. You can take out the money as you require it and then pay it back over time. Although some lenders may demand collateral for higher lines of credit or for customers with low credit ratings, personal lines of credit are usually unsecured. 

Pros and cons of Personal Line of Credit

The following table summarises the pros and cons of personal loans:

Pros	Cons
Flexibility	Variable interest rates
Low-interest rates	Additional fee charges
No collateral required	Potential for overborrowing
Revolving credit

Another disadvantage of a personal line of credit is that, in a personal loan, you can calculate personal loan EMI and prepare yourself to repay the loan within the scheduled time. Whereas in a personal line of credit, it all depends on how much you spend each month. You cannot calculate the EMI amount if you do not calculate and make notes of your expenses.

How to determine which loan option is best for you

To choose the best loan option, it is best if you consider the factors given below:

1. Level of your need
2. Interest rates
3. Loan term
4. Fees associated with the loan
5. Collateral
6. Credit score

Regarding personal loans, you must know the personal loan interest rate and calculate personal loan EMI as it helps you to decide whether you can pay the loan within the tenure or not. In the case of a personal line of credit, you have to manage your monthly expenses and strictly adhere to your monthly spending limit because you cannot priorly calculate personal loan EMI.

Conclusion

Personal loans and personal lines of credit are two popular types of personal finance, each having a unique set of benefits and drawbacks. When selecting the best choice for you, it’s crucial to thoroughly assess your financial requirements and aspirations. As mentioned earlier, in the case of personal loans, calculate personal loan EMI and in the case of personal line of credits, manage your expenses and set a limit on how much you spend each month.