Should I Get a Personal Loan or Personal Line of Credit?


If you’re in a position right now where you need a little extra cash, it’s a great time to borrow money. There are many reasons why you may want to take out a loan or line of credit. Perhaps you’re expanding your business, for instance, or trying to get one off the ground. Maybe you’re adding to your family and want to build an extra room onto your house.

Whatever your reasons for borrowing, you probably want to make sure you’re making a wise investment. Even with interest rates low in today’s market, you want to ensure you’re getting the best possible return on your money. Part of that is deciding whether you want to apply for a personal loan or a personal line of credit. We’ll walk you through the specifics of each and tell you how to decide which loan product is the right one for you.

Personal Loan

A personal loan functions similarly to a home mortgage. For instance, you borrow a set amount of money known as the principal balance and then you pay an interest rate on that amount over the term of the loan. As with home mortgages, you can often select the loan term that works best for you. So if you want to save money by spending less on interest, you may want to opt for a shorter loan term. On the other hand, if you want more time to pay back the loan, then a longer term may be the better option for you.

The great thing about Central Willamette Credit Union is that we offer unsecured personal loans. That means you don’t need to own collateral, such as a home, to borrow money with us. Instead, you can borrow up to $25,000 based on your creditworthiness alone. We offer loan terms up to 60 months for those who qualify.

Now is an excellent time to apply for a loan with Central Willamette. Right now, we’re offering lower than usual interest rates, as well as no payments for up to 90 days. If you’re looking for a loan that will give you flexibility and a little breathing room, our unsecured personal loan may be just the option for you.

Personal Line of Credit

In addition to our unsecured personal loans, we also offer unsecured personal lines of credit. One key difference between a personal loan and a line of credit is that with a line of credit, you’re able to draw on the principal amount, pay it back, and then re-borrow again over the life of the line.

Let’s take a look at an example. You apply for and are approved for a line of credit in the amount of $10,000. But right now, you only need $1,000 to apply for a business license, for example. You can take out that $1,000 and leave the remaining $9,000 to borrow at a later time. Now, let’s say, you’ve found the right location for your business and you need to pay the landlord a deposit to secure the property. You need $4,000 to do this so you borrow against the line of credit again. You’ve borrowed a total of $5,000 and you have $5,000 remaining.

Now, your business is up and running, and you’ve made your first couple of sales. You have enough money in the cash drawer to pay back that $5,000 you borrowed. So you log into your account and pay the borrowed amount in full. That means, once again, you have the full amount of $10,000 to borrow.


So unlike a conventional loan that requires you to borrow the money all at once, a line of credit offers you the flexibility to borrow only the amount of money you need at any given time. You are only paying interest on the amount you actually borrow. So even though you have $10,000 available to use, if you only borrow $5,000, you pay interest on the borrowed amount of $5,000 rather than the full loan amount of $10,000. The more quickly you pay it back, the less money you wind up paying in interest.

Another difference between a loan and line of credit is that personal loans have a fixed interest rate, whereas lines of credit have a variable interest rate. The latter type of interest rate will fluctuate with the market, whereas a fixed interest rate will remain the same over time. Also, there’s often an annual fee with lines of credit, whereas loans don’t have an annual fee. With an unsecured line of credit, you’re still able to borrow the maximum amount.

Which Is Right for You?

So which option is right for you? That depends on your particular situation. If you’re borrowing the money with a certain purpose in mind and know exactly how much you’ll need, you may want to take advantage of low interest rates and opt for a personal loan over a personal line of credit.

On the other hand, if you’re looking for some money to hold you over and are uncertain how much you’ll need, or if you anticipate needing to borrow money for several different purposes over a period of time, then a personal line of credit may be the better option.

If you’re still trying to figure out how much you want to borrow or want to find out how much your monthly payments will be, schedule an appointment with us to go over specifics. Certain situations are very nuanced and may require financial expertise to figure out which loan product is the better choice.

So give us a call. We’ll help you crunch the numbers and figure out the loan product, amount, and term that will work best for you. After all, money should work for you, not against you. So allow us to help you get the best possible return on your investment by making the numbers work in your favor.