What’s the difference between a line of credit and a personal loan?

A personal loan is a lump-sum loan for a large, one-time purchase (such as a car). Personal loans are given a term during which debtors make structured payments on a weekly, bi-weekly, or monthly basis. Interest is calculated based on the full loan amount.

A line of credit, on the other hand, is used for ongoing purchases and may be secured against the equity in your house. You’re given a set amount from which you can withdraw at any time for any purchase, and you only pay interest on the amount used. If your LOC (line of credit) is secured, you are only required to pay the interest each month. If you LOC in unsecured, which means it is not tied to the equity in your home, you are required to pay a percentage of the remaining balance on a monthly balance. For example, if the payment requirement is 3% each month, you would be required make a minimum payment of $300 on a $10,000 LOC.