Understanding the Difference Between a Personal Loan & Line of Credit

When managing finances, many people find themselves requiring additional funds beyond what they currently have. In such scenarios, personal loans and lines of credit emerge as popular options. Both serve as avenues to borrow money, yet they differ significantly in structure, flexibility, and usage. Understanding the disparities between these financial products is crucial for making informed decisions about borrowing. 

GoDay offers several types of loans, allowing you to seamlessly borrow money online through a quick and transparent process. However, we recommend that you understand the difference between a loan and a line of credit to ensure you make informed financial decisions. 

A lack of knowledge about these borrowing methods can result in unfavourable financial decisions that cause stress in the long run. To avoid this, learn more about the intricacies of personal loans and lines of credit to make educated borrowing decisions that match your unique needs.

What is a Personal Loan? 

A personal loan is a lump sum borrowed from a financial institution, such as a bank or online lender, typically with a fixed interest rate and repayment period. These loans are often unsecured, meaning they do not require collateral, and can be used for various purposes, such as consolidating debt, financing home improvements, or covering unexpected expenses.

The key to understanding different loan options is learning what each type offers and the process of obtaining that loan. Once you know what a personal loan and line of credit are, it will be easier for you to make informed choices.

Benefits of a Personal Loan 

When debating between a line of credit and a loan, it’s essential to get familiar with the benefits of both. Here are some benefits of a personal loan to keep in mind.

Predictable Repayment

Personal loans offer borrowers a fixed amount of money upfront and a predetermined repayment schedule. This predictability allows individuals to track their expenses, budget effectively, and plan for monthly payments without the uncertainty of fluctuating interest rates. 

You can choose your desired amount and apply for a new loan on GoDay’s website. Once your application is received, you will receive an instant decision in approximately four minutes. 

Lower Interest Rates

Personal loans often come with lower interest rates than other forms of borrowing, such as credit cards. This can result in significant savings over time, especially for large purchases or debt consolidation. However, this may not always be the case, so learning how personal loan interest rates are calculated is essential. 

Versatile Usage

Personal loans can be used for various purposes, including debt consolidation, home improvements, medical expenses, or major purchases. This versatility allows borrowers to address their financial needs without restrictions. 

At GoDay, we aim to provide a fast and efficient loan service to all our customers. We accept and approve personal loans around the clock, ensuring you have quick access to cash when needed. Once approved, we can deposit your funds directly into your account or send them to you through Interac® Email Money Transfer (terms and conditions may apply). This will enable you to use your funds however you please.

Drawbacks of a Personal Loan 

Although personal loans offer many benefits, they also have drawbacks that borrowers should consider.

Rigid Borrowing Structure

Unlike lines of credit, which offer ongoing access to funds, personal loans provide borrowers with a one-time lump sum. This rigid borrowing structure may not be suitable for individuals who require intermittent access to funds or have fluctuating financial needs. 

Stringent Approval Criteria

One of the differences between a line of credit vs loan is that the approval process for personal loans can be stringent, especially for borrowers with less-than-perfect credit scores. Lenders may require a strong credit history, stable income, and low debt-to-income ratio, making it challenging for some individuals to qualify for favourable loan terms. 

But this is where GoDay stands out among other online lenders. You can apply for our short term loans even if you don’t have a perfect credit score. Although we may review your credit as a part of your application, we consider more than just your credit score. We aim to streamline the process for you and reduce the stress typically associated with loan applications. 

Additional Fees

Some lenders may charge origination fees or prepayment penalties associated with personal loans. These fees can increase the overall cost of borrowing and should be carefully considered when evaluating loan options.

What is a Line of Credit? 

A line of credit, on the other hand, is a revolving form of credit extended by a financial institution. It allows borrowers to access funds as needed up to a predetermined credit limit. Unlike personal loans, lines of credit offer more flexibility, as borrowers can withdraw funds multiple times and only pay interest on the amount borrowed.

Benefits of a Line of Credit 

Review the potential benefits of a line of credit to determine if this borrowing method is better suited for your needs.

Flexibility in Borrowing

When comparing lines of credit vs loans, a key benefit to consider is the flexibility of a line of credit. Lines of credit provide borrowers with ongoing access to funds up to a predetermined credit limit. This flexibility allows individuals to borrow only what they need, when needed, without having to reapply for a new loan each time. 

Interest Only on Amount Borrowed

Unlike personal loans, where interest accrues on the entire loan amount, lines of credit only accrue interest on the amount borrowed. This can result in lower interest costs for borrowers, especially if they only utilize a portion of their available credit. 

This can make paying off your debt easier, as you won’t have to deal with interest charges on amounts you don’t use. This creates a significant difference between a line of credit and a loan, as with a loan, you would have to pay interest on the entire amount you borrow, while loans provide a lump sum amount at once. 

Customizable Repayment

Borrowers can repay the borrowed amount at their own pace as long as they make minimum monthly payments. This customizable repayment structure allows individuals to manage their cash flow more effectively and adjust their payment schedule to suit their financial circumstances. 

Drawbacks of a Line of Credit 

Like personal loans, lines of credit also come with drawbacks. Get familiar with them below. 

Variable Interest Rates

Unlike personal loans, which often have fixed interest rates, lines of credit may have variable interest rates that fluctuate over time. This can make it challenging for borrowers to predict how much they will owe each month and result in higher interest costs if rates increase. 

Potential for Overspending

The revolving nature of lines of credit can tempt borrowers to overspend, one of the most common money mistakes people make, leading to increased debt and financial strain. Without careful budgeting and discipline, individuals may be trapped in a cycle of borrowing and repayment, ultimately impacting their long-term financial stability.

Collateral Requirements

Some lines of credit may require collateral, such as a home or car, to secure the loan. This puts borrowers at risk of losing their assets if they fail to repay the debt, making lines of credit potentially more risky than unsecured personal loans. 

Key Differences Between a Personal Loan and Line of Credit

Understanding the key differences between a loan and a line of credit can help you choose the borrowing option that best aligns with your goals and circumstances.


Personal loans provide a lump sum of money upfront, offering borrowers a clear and defined borrowing structure. In contrast, lines of credit offer a revolving credit line that allows individuals to access funds as needed, providing flexibility in borrowing. 

However, a key difference between a loan and a line of credit when it comes to GoDay is that we offer instant decisions for our loans. All you have to do is apply online and get money online quickly after you’re approved. 

Repayment Terms

Another difference between a line of credit and a loan is their repayment structure. Personal loans come with fixed repayment periods, typically one to seven years, providing borrowers with a clear timeline for paying off the debt. 

On the other hand, lines of credit offer more flexible repayment schedules, allowing individuals to repay the borrowed amount at their own pace as long as they make minimum monthly payments. This offers adaptability in managing finances. 

Interest Rates

When comparing loan vs line of credit, keep in mind that interest rates may impact your decision. Personal loan interest rates are often fixed, giving borrowers stability and predictability in their monthly payments. 

In contrast, lines of credit may have variable interest rates that fluctuate over time, potentially resulting in varying monthly payments and increased interest costs. This offers borrowers the potential to capitalize on lower rates but also exposes them to the risk of rising rates. 

Choosing Between a Personal Loan vs Line of Credit 

Deciding between a line of credit vs loan depends on individual financial needs and preferences. Both loans can help you take charge of your finances if you do your research and choose a method accordingly. Those seeking a fixed amount of money for a specific purpose may find a personal loan more suitable, as it offers predictability and lower interest rates. 

On the other hand, individuals requiring ongoing access to funds or those with irregular income may benefit from a line of credit’s flexibility and revolving credit structure. It’s essential to carefully consider each option’s terms, interest rates, and repayment options before making a decision.