 TITLE: The Difference Between a Personal Loan and a Line of Credit CONTENT: Personal loans are sometimes called signature loans. They get this name due to the fact that if you qualify, you can receive the loan with just your signature. Because the loan is unsecured, you don't have to put up any assets or collateral, such as a home or vehicle, to secure financing.\nLines of credit, on the other hand, behave like credit card accounts. You can borrow, pay down your balance and access your available credit line again and again. Like a personal loan, you may be able to qualify for an unsecured personal line of credit with just your signature. However, if you secure your line of credit with an asset, you may receive a better interest rate.\n### How to Qualify\nBecause personal loans and lines of credit are two different financial products, they each have different qualification demands. The main difference between the two is that lenders may require your credit to be in better shape to be approved for a line of credit.\nEvery lender is different, of course. But most lenders will want you to meet the following criteria to qualify for a personal loan or line of credit:\n*   Good to exceptional credit rating\n*   Acceptable debt-to-income ratio\n*   Proof of stable income\nRemember, it's a good idea to check your credit on your own before you apply for any type of loan or financial product. You don't want to find out about any surprises or mistakes on your credit report when a lender processes your application.\n### The Application Process\nThe process to apply for a personal loan or a line of credit is similar. First, a lender will review your credit report and score, along with your income and assets, to determine whether extending credit to you is a good risk. The better your credit, the better your odds of approval for either type of financing.\nHere's one of the biggest differences between applying for a personal loan and a line of credit: With a personal loan, you need to know upfront how much money you want to borrow.\n### Interest Rates\nWhen you take out a personal loan, you are typically charged interest on the money you borrowed beginning on day one of the loan. In general, you will be charged a fixed interest rate. This means your interest rate stays the same throughout the life of your loan.\nInterest rates on personal loans largely depend on your credit and your lender. Average rates can range from a little over 4% for borrowers with exceptional credit to as high as 25% for borrowers with poor credit.\nWhile lines of credit may offer you more flexibility, this typically comes at a cost—namely a higher interest rate. Yet unlike personal loans, that interest rate doesn't kick in as soon as you're approved. Rather, you start paying interest on a line of credit once you access any portion of the funds available to you. In addition, the rates on lines of credit are variable and can change over time.\n### How Much Can You Borrow?\nFiguring out how much you can borrow will depend on a variety of factors, such as your income, your credit and the maximum amount of money a lender is willing to issue. As mentioned above, when you take out a personal loan, you receive your full loan amount in one lump sum. On a line of credit, you can borrow up to your account limit. However, provided your account remains in good standing, you can make payments to reduce your balance and then borrow back up to your account limit again, as needed. END