What is a personal line of credit?
A personal line of credit (PLOC) is a revolving credit account – similar to a credit card — that lets you borrow funds up to a specific credit limit. Personal lines of credit usually have a variable interest rate that may fluctuate with market changes. Like personal loans, they’re unsecured, so lenders evaluate your eligibility based on factors like creditworthiness and income.
A PLOC typically lets you borrow funds for a fixed amount of time, called the draw period. You may withdraw as much as your credit limit will allow during the draw period. During the draw period, your payments can replenish your credit limit.
If you still have a balance when the draw period is over, you typically enter the repayment period where you must repay the full balance. Some PLOCs don’t have a repayment period – they require that you repay the full amount in a balloon payment at the end of the draw period.
Comparing personal loans and personal lines of credit
Here’s how personal loans and PLOCs compare.
Qualification criteria: To be eligible for personal loans or PLOCs, borrowers need to meet the lender’s criteria for creditworthiness and income.
Hard credit inquiry: For both PLOCs and personal loans, lenders will generally conduct a hard credit inquiry to see if you meet the standards for creditworthiness.
Interest rates: PLOCs typically have variable interest rates, which means your rate is subject to market fluctuations. Personal loans usually have a fixed interest rate that stays the same throughout the loan term.
Distribution of funds: With a personal loan, you receive a lump sum all at once. With a PLOC, you access funds as needed during the draw period.
Repayment terms: You repay a personal loan in fixed monthly installments within a specified period while a PLOC does not usually have a set repayment plan. You’ll typically have a monthly payment throughout the draw period. Once the draw period is over, you may enter a repayment period during which you must repay the rest of the debt through monthly payments. In some cases, your lender may ask that you repay the entire borrowed balance at the end of the draw period. This is known as a balloon payment. Borrowers seeking a PLOC should look carefully at the repayment terms offered by their lender.
Choosing Between a personal loan and a personal line of credit
A personal loan can be the right move when you're seeking a lump sum payment that you can use as needed. Since you only receive the funds once, it’s usually better to use personal loans when you know exactly how much money you need and how you intend to spend it.
Because of its flexibility, a PLOC can be helpful you if you're still figuring out how much money you will require or if you need funds for ongoing expenses.
Citi offers personal loans to both existing Citi customers and new Citi customers that meet specific eligibility criteria, including an established credit and income history along with additional factors determined by Citi. If you think you could benefit from a Citi Personal Loan, apply online today.
This article is for educational purposes. It is not intended to provide legal, investment, or financial advice and is not a substitute for professional advice. It does not indicate the availability of any Citi product or service. For advice about your specific circumstances, you should consult a qualified professional.
