Running short on cash before payday? A personal line of credit can give you flexible access to funds—without locking you into a traditional loan.
It works like a credit card, letting you borrow as needed and only pay interest on what you use. Whether you’re dealing with irregular income, an unexpected expense, or just need a financial cushion, a personal line of credit can help smooth things over without resorting to high-interest debt.
Key Takeaways
- A personal line of credit (PLOC) is a flexible loan option that allows you to borrow money as needed, similar to a credit card, and pay interest only on the amount used.
- Benefits include competitive interest rates, building a positive payment history, quick access to funds, and helping to manage cash flow for those with irregular income. Drawbacks include potential damage to your credit score if not managed well, higher interest rates for those with poor credit, and limited loan terms.
- To secure a PLOC, you need good to excellent credit for the best rates, and you can obtain one from various banks, credit unions, or online lenders, with limits typically ranging from $500 to $100,000.
What is a personal line of credit?
A personal line of credit is a flexible borrowing option that lets you access money when you need it, rather than receiving a lump sum upfront. You’re approved for a set credit limit and can draw from it as needed, similar to how a credit card works.
You only pay interest on the amount you borrow, not the entire limit. This makes it a useful tool for handling unexpected expenses, smoothing out income gaps, or covering short-term financial needs without taking on a full personal loan.
How a Personal Line of Credit Works
Once you’re approved, you’ll get access to a revolving credit limit. You can transfer funds into your checking account whenever you need cash. As you repay what you borrow, that credit becomes available again, allowing you to borrow and repay repeatedly within the draw period.
For example, let’s say you’re approved for a $3,000 credit line. If you borrow $1,000, you’ll only pay interest on that amount. If you repay the $1,000, you’ll regain access to the full $3,000 limit.
Most personal lines of credit come with a draw period—usually between three and five years—followed by a repayment period where you can no longer borrow and must pay off the remaining balance.
Secured vs. Unsecured Personal Lines of Credit
Most personal lines of credit are unsecured, meaning you don’t have to put up any collateral to get approved. But this also means lenders take on more risk, so they typically offer lower limits and higher interest rates compared to secured options.
A secured personal line of credit, like a home equity line of credit (HELOC), uses your property or savings as collateral. Because it’s less risky for the lender, it often comes with lower rates and higher borrowing limits. The tradeoff is that you could lose the asset if you can’t repay.
Borrowers with strong credit usually qualify for unsecured lines, while those with lower credit scores may need to explore secured options or work on improving their credit first.
Pros & Cons of a Personal Line of Credit
A personal line of credit can be a helpful tool when managed responsibly, but it’s not the right fit for everyone. Here’s a closer look at the advantages and disadvantages.
Pros
- Borrow What You Need – You can take out smaller amounts as needed rather than receiving a lump sum.
- Lower Interest Than Credit Cards – Rates are often more competitive, especially for borrowers with good credit.
- Only Pay Interest on What You Use – You’re only charged interest on your outstanding balance.
- Revolving Access to Funds – As you repay, the available credit replenishes.
- May Help Your Credit Score – On-time payments and low utilization can work in your favor.
Cons
- High Rates for Poor Credit – Borrowers with lower credit scores may get stuck with expensive terms.
- Temptation to Overspend – Easy access to funds can lead to unnecessary debt.
- Limited Draw Period – You can typically borrow only during the first few years before entering full repayment.
- Impact on Credit Utilization – Using too much of your available limit can hurt your credit score.
- Potential Fees – Annual fees, late fees, or inactivity fees may apply depending on the lender.
Where to Get a Personal Line of Credit
You can get a personal line of credit from banks, credit unions, or online lenders. Each option comes with different approval standards, rates, and terms.
Banks typically offer higher credit limits and longer draw periods, but they often require excellent credit to qualify. Credit unions may be more flexible, especially for members with fair credit. Online lenders can be faster and easier to apply with, though interest rates and fees vary more widely.
Banks & Credit Unions That Offer Personal Lines of Credit
Here are some lenders that currently offer personal lines of credit:
- Citibank – $1,500 to $25,000
- Delta Community Credit Union – Up to $20,000
- First Service Credit Union – $1,000 to $30,000
- KeyBank – $2,000 to $25,000
- PenFed Credit Union – Up to $25,000
- PNC Bank – $1,000 to $25,000
- Regions Bank – $3,000 to $50,000
- TD Bank – $20,000 to $50,000
- Truist – $5,000 to $50,000
- Upgrade – $500 to $25,000
- U.S. Bank – Up to $25,000
- Wells Fargo – $3,000 to $100,000
Before applying, compare rates, fees, and draw periods. Some lenders may let you check your eligibility with a soft credit pull.
When to Use a Personal Line of Credit
A personal line of credit is best used for short-term or unexpected expenses when you don’t want to commit to a traditional loan. It’s not ideal for long-term borrowing or big one-time purchases.
Here are some situations where it can make sense:
- Covering temporary gaps in income
- Handling emergency medical or auto expenses
- Avoiding credit card debt or overdraft fees
- Managing irregular business or freelance income
If you know you’ll need money soon but don’t want to take it all at once, a line of credit gives you flexibility without interest charges on unused funds.
How It Affects Your Credit
A personal line of credit can impact your credit score in both positive and negative ways, depending on how you use it.
Positive effects:
- On-time payments help build a strong payment history.
- Having unused available credit can lower your credit utilization ratio.
Negative effects:
- Maxing out your limit raises your utilization, which can lower your score.
- Missing payments can result in fees and delinquencies on your credit report.
- Applying triggers a hard inquiry, which may temporarily reduce your score.
Because personal lines of credit are revolving accounts, they’re treated similarly to credit cards in credit scoring models.
Bottom Line
A personal line of credit offers flexible access to cash without the commitment of a lump-sum loan. But like any form of credit, it should be used responsibly. If you qualify for a good rate and only borrow what you can afford to repay, it can be a helpful tool for managing cash flow and covering short-term expenses.
Just make sure to have a plan for paying off what you borrow—and avoid turning a temporary solution into long-term debt.
Frequently Asked Questions
What’s the difference between a personal line of credit and a personal loan?
A personal loan gives you a lump sum of money upfront with fixed monthly payments and a set payoff timeline. It usually comes with a fixed interest rate.
A personal line of credit is revolving, like a credit card. You borrow only what you need, repay it, and borrow again if needed. You only pay interest on the amount used, and the rate is usually variable.
What is the typical interest rate for a personal line of credit?
Rates usually fall between 5% and 20%, depending on your credit score and the lender. They’re often lower than credit card rates.
How is the interest calculated on a personal line of credit?
Interest on a personal line of credit is typically calculated daily on the outstanding balance and billed monthly. You only pay interest on the amount you have borrowed, not the total credit limit.
What happens if I miss a payment on my personal line of credit?
Missing a payment on your personal line of credit can result in late fees and negatively impact your credit score. It’s important to make at least the minimum payments on time to avoid these consequences.
Can I increase my credit limit on a personal line of credit?
Some lenders allow you to request a credit limit increase on your personal line of credit, especially if you have a good payment history and your financial situation has improved. You may need to undergo a credit review and provide updated financial information.
Can I convert a personal line of credit to a fixed-rate loan?
Some lenders may offer the option to convert your personal line of credit balance into a fixed-rate loan. This can be beneficial if you prefer predictable monthly payments and want to lock in a fixed interest rate.
