FAQs
Key takeaways
Is it better to get a personal loan or line of credit? ›
A personal loan may have a lower interest rate than a personal line of credit, making it less expensive. Rates on personal lines of credit can be variable, which means the interest rate could increase over time.
What is the difference between a loan and a line of credit? ›
A loan gives you a lump sum of money that you repay over a period of time. A line of credit lets you borrow money up to a limit, pay it back, and borrow again.
What are the disadvantages of a line of credit? ›
Cons
- With easy access to money from a line of credit, you may get into serious financial trouble. For example, if you don't control your spending.
- If interest rates rise, you may have difficulty paying back your line of credit.
This must be said: If you have a poor credit score or credit history, it will be very difficult for a lending institution to extend you a LOC. Because there is no collateral defending the lender against the loan going bad, the interest rates on a line of credit are higher than mortgage or car loans.
What credit score is good enough for a personal loan? ›
To qualify for a personal loan, borrowers generally need a minimum credit score of at least 580 — though certain lenders have even lower requirements than that. However, your chances of getting a low interest personal loan rate are much higher if you have a “very good” or “excellent” credit score of 740 and above.
What credit score is needed for personal line of credit? ›
An unsecured personal line of credit requires a credit score of at least 680, generally speaking. If your score needs some work, you may want to seek out an alternative form of funding. A personal line of credit doesn't have a set borrowing limit.
What is easier to get a loan or line of credit? ›
Lenders often have higher credit score requirements for lines of credit compared to personal loans. For example, borrowers should aim to have a minimum credit score of 670 when applying for a line of credit. However, there are personal loans available that don't post a minimum credit score requirement.
What is the minimum credit score for a line of credit? ›
Criteria for Applying for a Line of Credit
A credit score of 660 or above is considered good, but requirements can vary by lender. Income: Lenders want to ensure you have a stable income to repay the line of credit. They may require proof of income, such as pay stubs or tax returns, to verify your earnings.
Is it wise to have a line of credit? ›
If, on the other hand, you need the flexibility to borrow for a variety of needs, without having to reapply every time, then a line of credit may be a better option – as the funds up to your available credit limit are there, whenever you want! And you only pay interest on what you use.
If you don't use your line of credit and the account sits dormant for a long period of time, your bank may close your account. This could cause your score to decrease because the loss of the account would shrink your available credit (and thus negatively affect your credit utilization).
Can you withdraw cash from a personal line of credit? ›
Only pay for the draws that you make: With a PLOC, you don't have to pay anything until you make a draw on your funds. You can withdraw funds of any amount within your limit and you only pay for the amount you have withdrawn plus interest.
How to pay down a line of credit faster? ›
The debt avalanche method
This method focuses on paying off the debt with the highest interest rate first. After that's paid, you shift to the debt with the next highest interest rate and so on. It's a highly efficient way to pay down debt.
Why am I getting denied for a line of credit? ›
A history of missing or late payments, especially recently, increases the possibility that you'll be denied new credit, so paying your bills on time is important. Even if you're approved for a credit card account or line of credit, you may have a lower credit limit and higher interest rate because of your credit score.
What credit score do you need to get a $30,000 loan? ›
This allows them to look at your history from the past seven years and see whether you've typically made payments on time. For a $30,000 loan, you'll typically need a credit score above 600 just to qualify or above 700 to get a competitive rate.
What do you need to get approved for a line of credit? ›
The Bottom Line
Though lenders will each have their own qualification requirements when it comes to credit scores, you could get approved for a line of credit if you have a score of 660. However, your chances of approval (and getting better interest rates) increase if your score is closer to 713 and above.
Are lines of credit cheaper than loans? ›
Credit lines tend to have higher interest rates than loans. Interest accrues on the full loan amount right away. Interest accrues only when funds are accessed.
Are personal loans bad for your credit score? ›
The Bottom Line
A personal loan will cause a slight hit to your credit score in the short term, but making on-time payments will bring it back up and can help improve your credit in the long run. A personal loan calculator can help determine the loan repayment term that's right for you.
Is getting a line of credit a good idea? ›
If, on the other hand, you need the flexibility to borrow for a variety of needs, without having to reapply every time, then a line of credit may be a better option – as the funds up to your available credit limit are there, whenever you want! And you only pay interest on what you use.
Does a credit line hurt your credit? ›
Since a credit line is treated as revolving debt, both your maximum credit line limit and your balance affect your credit utilization. Your payment history is also reflected on your credit report, which could help or hurt your score depending on how you manage the account.
