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Personal Loans vs. Personal Line of Credit (PLOC): What's the Difference?

ASB April 14, 2021 | 5 min read Personal

Have you ever needed extra cash? Most of us have at some point, whether planning a family vacation or having your car breakdown suddenly. Being able to get the money you need, when you need it is essential, no matter what you need it for.

Both personal loans and PLOCs can help you borrow cash when you need it most. Working with a trusted local bank can help you get favorable terms for your personal financing needs. This article will help you understand the difference between personal loans and PLOCs so you can make the right choice when you need extra funds.

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What's a Personal Loan?

A personal loan is a loan that can be used for just about anything. If you qualify, you can take out a personal loan for a lot of different things, such as consolidating high-interest credit card debt or making a big-ticket purchase.

Personal loans work by giving you a lump-sum of cash if you’re approved. You’ll then make fixed monthly payments to pay back the money you borrowed, with interest. Most personal loans are unsecured, which means you won’t have to provide collateral to take out the loan.

Pros of Personal Loans

  • A personal loan has a fixed interest rate that stays the same for the life of your loan

  • Loan funds come as a lump sum

  • You have a predictable, fixed monthly loan payment

Cons of Personal Loans

  • You’re limited to a set amount of funds

  • Your monthly payment could put stress on your monthly budget

  • You might get a higher interest rate compared to real estate secured loans

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What's a Personal Line of Credit (PLOC)?

PLOCs are a type of revolving line of credit. This means you can access your approved line of credit limit as much as you want, as long as you pay off what you borrow. PLOCs work a lot like credit cards and if you’re approved for one, you’re often given a credit limit. You can borrow as much as you want up to the available limit.

For example, if you’re approved for a $5,000 PLOC, you can borrow up to $5,000 from the line of credit. After borrowing the full amount, you can pay off part or all of the outstanding balance to replenish your available line of credit and get access to credit again. So, if you pay off $3,000 of the $5,000 you’ve borrowed, you can borrow $3,000 (the amount you paid which becomes available for future borrowing).

Personal Lines of Credit can be beneficial if you’re not sure how much money you’ll need to make a purchase. Home repairs or renovations, for example, often have small additional costs that add up over time. With a PLOC, you’re able to continue borrowing against your line of credit as needed.

Pros of PLOCs

  • Quick access to cash when you need it

  • You only pay interest on the money that you borrow from your line of credit

  • Borrow as much as you want, up to your credit limit

  • Unlimited revolving, repayment and re-borrowing

Cons of PLOCs

  • Personal lines of credit usually have variable interest rates. This means your rate could go up unexpectedly

  • Borrowing a lot against your line of credit could hurt your credit score by raising the amount of credit you’re using

  • You might be tempted to overspend with access to a revolving line of credit

Personal Loan or PLOC: Which one is right for you?

Having trouble deciding between a personal loan and PLOC? Make an appointment with one of our helpful bankers to get a better understanding of your loan options.

You can also get a quick idea of whether a loan or line of credit is a better choice by using our helpful loan chooser. Simply answer a few questions about your financial needs and we’ll recommend the best option for you. You can then apply for your loan or learn more and set up an appointment to talk with a banker.

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