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Personal Lines of Credit
Fehmida Tantray
Shivanand Pandey
Sonali Jadhav
What to know first: A personal line of credit (PLOC) provides revolving access to funds with lower rates than credit cards—use it for emergencies, home renovations, or irregular expenses. Banks offer PLOCs with variable rates, draw periods, and potential fees. Requires good credit (680+ FICO). Consider the interest rates, terms, overdraft protection, and alternatives like HELOCs or personal loans before applying.
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What Is a Personal Line of Credit?
A personal line of credit (PLOC) is a flexible form of revolving credit, meaning you can borrow, repay, and borrow again up to your approved limit as long as the account remains open and in good standing. Banks and credit unions typically offer PLOCs, and some may require you to have a checking account with them.
PLOCs usually have a draw period (a set time when you can access funds) unlike credit cards. Once this period ends, you must repay the borrowed amount in full. PLOCs often have variable interest rates and may be unsecured (no collateral required).
How Does a Personal Line of Credit Work?
A Personal Line of Credit (PLOC) functions as a flexible borrowing option, allowing you to access funds as needed, up to a predetermined credit limit. You only pay interest on the amount you borrow unlike a traditional loan, making it a cost-effective choice for managing expenses.
You can access funds from a PLOC by:
- Writing special checks linked to the account
- Transferring money to your checking account
Each month, you’ll receive a statement detailing your outstanding balance and a minimum payment based on the amount borrowed. Paying more than the minimum reduces overall interest costs, while paying the full balance each month may help you avoid interest charges entirely.
However, some lenders impose additional costs, such as:
- Annual fees for maintaining the credit line
- Per-use fees each time you withdraw money
It’s important to fully understand PLOC terms, fees, and repayment plans prior to applying. Overborrowing might put a burden on your finances, but responsible utilization can help you manage cash flow more successfully. A PLOC should always be in line with your financial circumstances, so always compare lenders and take other loan possibilities into account.
Personal Line of Credit Options at a Glance
Here’s a quick comparison of top lenders:
| Lender | APR Range | Loan Amounts | Annual Fee |
|---|---|---|---|
| Fifth Third Bank | 8.44% – 21.74% | $2,000−$50,000 | $65 (first year waived) |
| First Tech Credit Union | 13.50% – 18.00% | $25,000−1M | None |
| KeyBank | 14.25% – 18.75% | $2,000−$25,000 | None |
| PNC Bank | 16.25% – 22.55% | $1,000−$25,000 | $50 |
| Regions Bank | 13.50% – 26.50% | $500−$50,000 | $50 |
| U.S. Bank | 12.50% – 22.50% | Up to $25,000 | None |
Personal Line of Credit Fees
It’s essential to be aware of potential fees that can affect the overall cost of borrowing when considering a Personal Line of Credit (PLOC). As PLOCs offer flexibility, these charges can add up over time, impacting your financial planning.
PLOCs may come with various fees, such as:
- Application fees – Charged when you apply for the credit line
- Origination fees – Covers the cost of processing your loan
- Annual or monthly maintenance fees – For keeping the account open
- Late payment fees – Imposed if you miss a due date
- Transaction fees – Charged per withdrawal from the credit line
Not all lenders charge the same fees, so it’s significant to review the terms carefully before committing. Getting to know these costs upfront can help you make an informed decision and avoid unexpected financial burdens. Always compare lenders and assess whether a PLOC is the most cost-effective option for your needs.
What Is a Personal Line of Credit Used For?
A Personal Line of Credit (PLOC) is a versatile financial tool that provides access to funds whenever needed. Unlike a traditional loan, where you receive a lump sum, a PLOC lets you borrow as much or as little as required up to your approved limit, making it ideal for covering expenses that are recurring, unpredictable, or short-term. Since the funds are revolving, you can repay and reuse them, offering continuous financial flexibility.
PLOCs offer flexibility for expenses like:
- Home renovations – Fund remodeling, repairs, or upgrades without depleting savings
- Unexpected bills – Cover sudden medical expenses or urgent car repairs
- Emergency expenses – Have a safety net for unplanned costs like job loss or travel emergencies
- Cash flow management – Ideal for freelancers and gig workers dealing with irregular income
Because of its reusable nature, a PLOC works well for situations where expenses arise sporadically rather than all at once. However, responsible usage is key, borrowing more than necessary can lead to debt accumulation. Before opening a PLOC, compare lender terms, understand the repayment structure, and ensure it aligns with your financial goals.
Pros and Cons of a Personal Line of Credit
A Personal Line of Credit (PLOC) is a flexible borrowing option that allows access to funds on an as-needed basis. There are also potential drawbacks to consider although it offers many advantages. Learning both can help you decide if a PLOC is the right financial tool for you.
Personal Line of Credit Pros
- Flexible access to funds – Borrow only what you need, when you need it, rather than taking a lump sum like with a personal loan. This can help manage expenses more efficiently.
- Lower interest rates than credit cards (in some cases) – Many PLOCs offer lower interest rates compared to credit cards, making them a cost-effective option for borrowing, especially for large purchases or ongoing expenses. However, rates can vary based on creditworthiness and lender terms.
- No collateral required (for unsecured PLOCs) – In contrast to home equity lines of credit (HELOCs) or secured loans, an unsecured PLOC doesn’t require collateral, reducing the risk of losing personal assets in case of non-payment.
- Can be linked to checking for overdraft protection – Some banks allow you to connect your PLOC to your checking account, automatically covering overdrafts and preventing costly overdraft fees or declined transactions.
Personal Line of Credit Cons
- Hard to qualify with bad credit (usually requires 680+ FICO) – Most lenders require a strong credit score (typically 680 or higher) to approve a PLOC. Those with lower scores may face higher interest rates, stricter terms, or even denial.
- Fees add up (origination, annual, transaction fees) – PLOCs may come with multiple fees, including origination fees, annual maintenance fees, and transaction fees for each withdrawal. These extra costs can make borrowing more expensive over time.
- Must repay in full after the draw period ends – PLOCs typically have a draw period (often a few years), during which you can borrow and make minimum payments. Once the draw period ends, you must repay the remaining balance, which could lead to financial strain if not planned for.
- Interest isn’t tax-deductible (unlike HELOCs) – As opposed to a HELOC, where interest may be tax-deductible if used for home improvements, PLOC interest does not offer any tax benefits, making it a less attractive option for homeowners.
- Expiration date (unlike open-ended credit cards) – A PLOC has a fixed term and expiration date, meaning once the borrowing period ends, you can’t access additional funds unless you reapply and qualify for a new line of credit.
How Personal Lines of Credit Compare to Other Types of Financing
A Personal Line of Credit (PLOC) is just one of many borrowing options available. Depending on your needs, a personal loan, HELOC, business line of credit, or credit card might be a better fit. Below, we compare PLOCs with other common types of financing.
Personal Line of Credit vs. Personal Loan
| Feature | Personal Line of Credit (PLOC) | Personal Loan |
|---|---|---|
| Type | Revolving credit (borrow as needed) | Lump-sum loan (fixed amount) |
| Interest | Typically variable rates | Typically fixed rates |
| Repayment | Pay as you borrow (minimum payments required) | Fixed monthly payments over a set term |
| Best For | Ongoing or unpredictable expenses | One-time major purchases |
Main Differences
- A PLOC is a revolving credit line, meaning you can borrow, repay, and borrow again within your limit. A personal loan, on the other hand, provides a lump sum upfront that you repay in fixed monthly installments.
- Personal loans usually have fixed interest rates, so your monthly payment stays the same, while PLOCs typically have variable rates, which can fluctuate.
A PLOC is better for ongoing or unexpected expenses, while a personal loan is best for a one-time expense like debt consolidation, medical bills, or a large purchase.
Personal Line of Credit vs. Home Equity Line of Credit (HELOC)
| Feature | Personal Line of Credit (PLOC) | Home Equity Line of Credit (HELOC) |
|---|---|---|
| Secured vs. Unsecured | Unsecured (no collateral required) | Secured (backed by home equity) |
| Interest Rates | Higher, since it’s riskier for the lender | Lower, since it’s backed by collateral |
| Risk | No risk of losing assets | Risk of foreclosure if payments aren’t made |
| Best For | Borrowing without using home equity | Home improvement or large expenses |
Main Differences
A HELOC is secured by home equity, meaning you’re borrowing against your home’s value. If you default, you risk foreclosure. A PLOC is unsecured, so there’s no risk of losing property. Because a HELOC is less risky for lenders, it generally offers lower interest rates than a PLOC.
A HELOC is a great option for homeowners looking to finance home renovations, while a PLOC is better for those who don’t own property or prefer an unsecured option.
Personal Line of Credit vs. Business Line of Credit
| Feature | Personal Line of Credit (PLOC) | Business Line of Credit |
|---|---|---|
| Purpose | For personal expenses | For business-related expenses |
| Loan Amount | Lower credit limits | Higher credit limits |
| Interest Rates | Typically higher | Typically lower |
| Best For | Personal use (home repairs, emergencies) | Business expenses (inventory, payroll, expansion) |
Main Differences
- A PLOC is for individuals, while a business line of credit is designed for companies to help with cash flow, inventory, and operational expenses.
- Business lines of credit often have higher credit limits, while PLOCs have lower borrowing limits since they are for personal use.
- Business loans tend to have slightly lower interest rates, as businesses generate revenue that lenders consider when approving credit.
Personal Line of Credit vs. Credit Cards
| Feature | Personal Line of Credit (PLOC) | Credit Card |
|---|---|---|
| Access | Checks or bank transfers | Swipe, tap, or dip card |
| Rewards | None | Cash back, points, miles |
| Expiration | Fixed draw period | Open-ended (no set expiration) |
| Interest Rates | Usually lower than credit cards | Usually higher than a PLOC |
| Best For | Larger expenses, cash flow needs | Everyday purchases, earning rewards |
Main Differences
- A PLOC requires writing checks or transferring funds to access money, while credit cards allow instant transactions with a swipe or tap.
- Credit cards offer rewards (such as cash back, points, or travel miles), while PLOCs do not.
- Credit cards are open-ended– you can keep using them indefinitely as long as the account remains in good standing. A PLOC has a set draw period, after which borrowing stops.
Interest rates on PLOCs are usually lower than credit cards, making them a cheaper borrowing option for large expenses or cash flow management.
What’s the Difference Between Open-End and Closed-End Credit?
Having knowledge of the difference between open-end and closed-end credit is important when taking out a loan. These financing options differ in structure, repayment terms, and how you can access and use the funds.
Open-End Credit (Revolving Credit)
Open-end credit, also known as revolving credit, allows borrowers to access funds repeatedly up to a set credit limit. As you repay what you borrow, those funds become available again for future use.
Common Examples:
- Personal Line of Credit (PLOC) – Borrow as needed and repay over time.
- Credit Cards – Swipe, pay down the balance, and reuse the credit.
- Home Equity Line of Credit (HELOC) – Borrow against home equity with a revolving credit structure.
Main Features:
- Reusable funds: As you pay off your balance, you can borrow again.
- No fixed repayment term: You make minimum payments but can repay at your own pace.
- Interest applies only to borrowed amounts: You’re only charged interest on the outstanding balance.
- Flexible borrowing: Can be used for various expenses, from everyday purchases to emergencies.
- Variable interest rates: Most open-end credit products have fluctuating rates.
- Potential for high debt: If not managed carefully, balances can build up over time.
Closed-End Credit (Installment Credit)
Closed-end credit, also called installment credit, provides a one-time lump sum that must be repaid in fixed payments over a set period. Once the loan is paid off, the account is closed, and you cannot borrow additional funds without applying for a new loan.
Common Examples:
- Personal Loans – Borrow a set amount and repay in equal monthly installments.
- Mortgages – Finance a home with structured monthly payments over a fixed term.
- Auto Loans – Borrow money to buy a vehicle, then make fixed payments until fully repaid.
Main Features:
- Predictable payments: Fixed monthly installments make budgeting easier.
- Fixed loan term: Loans have a defined repayment schedule, usually lasting months to years.
- Stable interest rates: Many closed-end loans have fixed interest rates, providing stability.
- Best for large purchases: Ideal for home purchases, debt consolidation, and major expenses.
- Not reusable: Once you repay the loan, you cannot borrow again without applying for a new loan.
- Early repayment penalties: Some loans charge fees for paying off the balance early.
Comparison Table: Open-End vs. Closed-End Credit
| Feature | Open-End Credit (Revolving Credit) | Closed-End Credit (Installment Credit) |
|---|---|---|
| Structure | Borrow as needed, repay, and borrow again | One-time loan with fixed payments |
| Repayment | Minimum payments required, no fixed schedule | Fixed monthly installments |
| Interest | Variable rates, applied only to borrowed amount | Fixed or variable rates, applies to full amount |
| Credit Limit | Set credit limit, replenishes as you repay | Fixed loan amount, no reuse |
| Best For | Ongoing expenses, flexibility (e.g., credit cards, PLOCs) | Large purchases, structured repayment (e.g., mortgages, auto loans) |
Personal Line of Credit Interest Rates
A Personal Line of Credit (PLOC) offers flexible borrowing, but its cost depends on interest rates. These rates are normally variable, meaning they can change over time based on market conditions. Most PLOCs are tied to the prime rate, which serves as a benchmark for many financial products.
For example:
If the prime rate is 8.50% and your PLOC has a margin of prime + 5.00%, your starting Annual Percentage Rate (APR) would be 13.50%.
Since PLOCs have variable rates, your borrowing costs can fluctuate monthly. This means your minimum payment and total interest paid may increase or decrease as the prime rate changes. Always monitor rate trends and consider how rising interest rates could impact your financial plan
How to Get a Personal Line of Credit
Getting a Personal Line of Credit (PLOC) can be a smart financial move if you need flexible access to funds. Here’s a more detailed explanation of the process:
- Check Your Credit Score
Most lenders require a credit score of 680 or higher to offer competitive rates, making creditworthiness a key factor in approval. Your credit score helps lenders assess the risk of lending to you, and a higher score increases your chances of approval and getting a lower interest rate. - Review Your Budget
Decide how much credit you need based on your financial goals. Consider your current financial situation and future needs. Do you need a small amount for emergency expenses, or are you looking for a larger credit limit for ongoing projects? Assessing your budget will help you avoid borrowing more than you need, which can prevent unnecessary debt and interest payments. - Research Lenders
Different financial institutions offer different terms. Compare interest rates, fees, and loan limits to find the best deal. Some lenders might offer PLOCs with a fixed rate, while others may have variable rates tied to the prime rate. Pay attention to any annual fees, transaction fees, and penalties for late payments, as these can add to the overall cost of borrowing. - Apply (Online or In-Branch)
Once you’ve found a lender that meets your needs, it’s time to apply. Many lenders allow you to apply online, making the process quick and convenient. The application will require personal and financial information, such as your income, employment status, and credit history. The lender may also perform a hard credit inquiry to assess your creditworthiness. - Start Borrowing (Use Checks or Transfers)
After your application is approved, you’ll receive access to your credit line. Most PLOCs provide you with checks or a debit card to make withdrawals. You can access your funds whenever you need them, as long as you stay within your credit limit.
How a Line of Credit Can Protect You from Overdraft Fees
A Personal Line of Credit (PLOC) linked to your checking account can act as a safety net, protecting you from costly overdraft fees. Here’s how it works:
Automatic Transfers in $50 Increments
When you link your PLOC to your checking account, it can automatically transfer funds in small increments, generally around $50. If your checking account balance drops too low, the PLOC will cover the shortfall, allowing you to complete transactions without interruption. This helps you avoid declined payments, which can negatively affect your credit and finances.
Avoid NSF Fees ($30+ per Transaction)
You may be subject to Non-Sufficient Funds (NSF) fees, which are frequently $30 or more per transaction, if your account balance is inadequate to fund a transaction without an associated PLOC. These fees can quickly add up, making a small mistake costly. By using your PLOC as overdraft protection, you can avoid these fees, saving you money in the long run.
Automatic Repayment from Checking
Most PLOCs with overdraft protection automatically deduct the borrowed funds directly from your checking account each month. This means you don’t have to worry about manually repaying the balance. As long as you have sufficient funds in your account, the repayment is automatic, ensuring you stay on top of your credit obligations without additional effort.
Can You Get a Personal Line of Credit with Bad Credit?
Yes, but expect less favorable terms. Lenders assess creditworthiness, and lower scores often mean higher costs.
Higher Interest Rates – Bad credit leads to higher rates, often 20-30% or more.
Fees Up to 10% Per Withdrawal – Each draw may incur steep fees, increasing borrowing costs.
Secured Options – Using savings, investments, or property as collateral can improve approval chances and lower rates.
Credit Score Requirements – Traditional lenders usually require 680+, but alternative lenders may accept lower scores.
Alternative Lenders – Online and subprime lenders offer options but with high rates and fees.
Credit Rebuilding Potential – Responsible use and on-time payments can improve credit over time.
Short-Term Solution – Best for emergencies or essential expenses; careful management is key.
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FAQ’s
Frequently asked questions of Personal Lines of Credit
What is a personal line of credit for?
A Personal Line of Credit (PLOC) is a flexible borrowing tool designed for ongoing expenses such as home repairs, emergency situations, medical bills, or managing cash flow gaps. It allows you to borrow funds as needed, up to a predetermined limit, and only pay interest on the amount borrowed.
How hard is it to qualify for a personal line of credit?
To qualify for a personal line of credit, you typically need a good credit score (680 or higher), a steady income, and a relatively low debt-to-income ratio. Lenders will assess your creditworthiness, income stability, and financial history to determine if you’re eligible and to set your credit limit.
Is getting a line of credit a good idea?
A personal line of credit can be a good idea if you need flexible borrowing options and can manage repayments responsibly. It provides quick access to funds without the need for a lump sum loan. However, it’s important to use it wisely to avoid high-interest charges and to maintain your credit score.
Who qualifies for a personal line of credit?
Typically, borrowers with good credit, a stable income, and low debt are more likely to qualify for a personal line of credit. Lenders also look for individuals who demonstrate responsible financial habits and can repay the borrowed funds. However, some lenders offer lines of credit for people with less-than-perfect credit, though with higher rates.
Does a personal line of credit affect your credit scores?
Yes, applying for a PLOC results in a hard inquiry, which may cause a small, temporary dip in your credit score. Additionally, how you use the line of credit can impact your score. High balances can increase your credit utilization rate, which may negatively affect your credit score. On-time payments can help improve your credit score over time.
What happens if you never use your line of credit?
If you don’t use your line of credit, some lenders may eventually close the account due to inactivity. However, as long as you don’t borrow, your credit score will not be directly affected by a lack of usage. It’s important to keep an eye on your account status to avoid unexpected closures.
Is a personal line of credit hard to get?
It depends on your creditworthiness. Applicants with a strong credit history, steady income, and low debt will generally have an easier time getting approved and may receive better rates and terms. If you have poor credit, you may face higher interest rates, or you might be required to secure the credit line with collateral.
