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A personal line of credit is a form of debt that allows people to withdraw money from an account to cover expenses, then repay the amount they borrowed. A personal line of credit is a revolving loan; like a credit card, you borrow against the line of credit and then pay back what you spent with interest.

If you have regular borrowing needs that a credit card can’t cover and aren't sure exactly how much you'll need, a flexible personal line of credit might be the answer for you.

What is a personal line of credit?

A personal line of credit is a type of account you can get through a lending institution, such as a bank or credit union, which allows you to borrow from it up to a predetermined amount.

These accounts are typically unsecured (meaning you don’t need collateral), have a borrowing limit, come with variable interest rates and require high credit scores. If you have a solid credit profile, you may be eligible for interest rates on a personal line of credit that are lower than what many credit cards offer.

How does a personal line of credit work?

Like a credit card, a personal line of credit is an open-ended revolving loan. During your account’s draw period, you may borrow as much money as you need (up to a predetermined amount).

Once the draw period closes, you’ll pay back the amount you borrowed plus interest, replenishing your credit for the next time you need to borrow from your line of credit.

Like credit cards, personal lines of credit typically come with variable interest rates, meaning your interest could go up or down depending on market conditions.

Types of personal lines of credit

When choosing a personal line of credit, borrowers have more than one option to pick from. Here are the three most common types of personal lines of credit:

  • Unsecured lines of credit do not require collateral. Instead of relying on a valuable possession to back the loan, such as a vehicle or savings account, an unsecured line of credit is offered based on your credit score and history. Most lines of credit are unsecured.
  • Secured lines of credit require that borrowers offer a form of collateral, including real estate, vehicles and savings accounts. However, if the borrower is unable to repay the loan, the lender may legally seize their collateral in an effort to recoup its losses.
  • Business lines of credit work similarly to personal lines of credit, except they are intended for companies rather than individuals. A business line of credit can provide short-term funding for necessities like payroll or purchasing inventory, but may not be a suitable solution for long-term needs.

Pros and cons of personal lines of credit

Like most financial decisions, opening a personal line of credit comes with both benefits and drawbacks.

Pros

  • May draw up to 100% of credit limit without restrictions
  • Interest incurred only on funds borrowed
  • Flexible repayment options
  • Lower average APR than credit cards
  • Can be used for a wide variety of purposes, including home improvements or unexpected expenses
  • Unsecured credit lines risk no collateral, but collateral can be used to get lower interest rates via a secured credit line

Cons

  • Non-deductible interest expense
  • Most have variable rates, so if interest rates increase, the cost of the line of credit also rises
  • Annual/monthly maintenance fees, regardless of use
  • Often has higher rates than fixed-rate loans; not ideal for debt consolidation
  • Requires a good credit score to qualify, and a persistently high balance can decrease your score
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Personal line of credit eligibility and rates

In order to receive good rates, you’ll need to demonstrate to potential lenders that you have a strong credit score and history. The following chart outlines common terms and rates you may find with a personal line of credit based on our reviews of different lenders.

Average Interest Rates
Variable range 9.30% - 17.55% (based on prime rate)
Term Range6 months - 5 years (or flexible)
Credit Limit Range$1,000 - $100,000
Average Fees
  • Annual maintenance fee: $25 - $50
  • No check processing fee
  • No prepayment penalty
  • Late payment fee: $32 or ~7.5% of monthly payment past due
  • Returned payment fee: $25 - $39
Repayment ScheduleMonthly

How to get a personal line of credit

To apply for a personal line of credit, you’ll usually need to have the following documents ready, as well as an eligible credit score.

  • Proof of income/employment: Lenders will want to know whether you can afford to repay the loan and will want to take a look at your income. If you’re unemployed, you may be able to provide other proof of income, such as child support, alimony, Social Security or your spouse’s wages, to prove that you have the resources to repay the money you borrow.
  • Financial history and standing: Aside from your income and credit score, many lenders will also want to see additional financial information, such as whether you have a history of paying your bills on time and how high your debt-to-income ratio is. This information will help lenders analyze whether you can afford to take on new debt.
  • Credit score and history: To qualify for a personal line of credit, you’ll typically need a credit score of at least 690, as well as a solid profile with no defaults or other issues. Remember, the higher your score, the better the interest rate you could qualify for, so you may want to work on improving your credit score if you’re worried about being approved.

Where to find a personal line of credit

When searching for a personal line of credit, your best bet may be to use a financial institution you already have a relationship with.

If your bank offers credit cards and checking accounts, you may also be able to apply for a personal line of credit at your local branch. Many local and regional banks can also provide personal lines of credit to existing customers.

Since personal lines of credit are revolving credit, you’re less likely to find them offered by most online lenders. Instead, the market for credit lines is generally dominated by big banks and credit unions — entities with sufficient capital to sustain a revolving credit service.

Alternatives to personal lines of credit

While personal lines of credit may be a good option for some potential borrowers, it’s not a one-size-fits-all solution. Here are a few alternatives to getting a personal line of credit.

Credit cards

Credit cards work similarly to personal lines of credit, though they don’t have a draw or repayment periods. Like personal lines of credit, they come with variable interest rates and are typically unsecured. Credit card users can borrow as much as they want up to a preset amount and only have to pay interest on the borrowed balance.

Personal loans

Personal loans come in the form of lump sums that are given to borrowers at fixed interest rates. This means that the interest rate on this form of credit will remain the same throughout the life of the loan. Like personal lines of credit, personal loans can be unsecured or secured.

Home equity lines of credit

Home equity lines of credit (HELOC) are sometimes referred to as second mortgages. This type of credit allows you to borrow against the equity you’ve built in your home. HELOCs are secured, meaning your home will serve as collateral while you repay the loan, and it comes with variable interest rates.

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