Personal Lines of Credit

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What is a personal line of credit?

Written by Carol Pope | Edited by Jessica Sain-Baird | Updated April 10, 2024

A personal line of credit (PLOC) is a type of financing that you can borrow from over and over again. You must stay within your credit limit, and paying back what you owe frees up credit that you can borrow from again.

In this way, personal lines of credit are similar to credit cards — both are a type of revolving debt. This is also called open-end credit. You usually need to have at least good credit to qualify for a PLOC.

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What’s the difference between open-end and closed-end credit?

An open-end credit transaction is one that allows you to continuously borrow money up to a predetermined limit. You only have to repay what you borrow. Personal lines of credit, credit cards and HELOCs are examples of open-end credit.

A closed-end credit transaction is one that provides a lump sum of money up front. Then you’ll repay that lump sum in installments over a certain period of time. Installment loans (like personal loans, auto loans and mortgages) are examples of closed-end credit.

How does a personal line of credit work?

Personal lines of credit have a life cycle with two stages: the draw period and the repayment period. These stages usually last three to five years each.

  • Draw period: Think of your draw period as your borrowing period. Here, you’ll use a specific card or checkbook to draw from your line of credit. During this time, you’ll also make minimum monthly payments.
  • Repayment period: When you hit your repayment period, you will no longer be able to borrow. Instead, this is the time you’ll pay back your outstanding balance.

You can usually borrow between $1,000 and $50,000 with a PLOC. Your lender might also have a minimum draw amount. For example, you might not be able to draw less than $50 at a time.

Although most personal lines of credit use the draw period/repayment period model, not all do. Some only have a draw period, with the outstanding balance due in full once that draw period is over.

Personal line of credit interest rates

On a personal line of credit, you pay interest on what you borrow, and interest accrues immediately. Also the annual percentage rate (APR) is usually variable, meaning it can go up and down. Credit cards also have variable rates.

Variable interest rates are guided by the Wall Street Journal prime rate.

The Wall Street Journal prime rate (also called the U.S. prime rate) is the average interest rate that most lenders charge their most creditworthy customers. This rate tends to fluctuate based on the Federal Reserve rate, but not always.

To illustrate this, let’s say you see a PLOC with a starting APR of prime plus 5.00%. Also imagine that the prime rate is 8.50%. That means borrowers with the best credit could get a minimum APR of 13.50%, or 8.50% plus 5.00%.

Personal line of credit fees

Each lender sets its own fees on personal lines of credit. As you read the fine print, keep an eye out for extra charges such as:

  • Origination fee: Some lenders tack on this upfront fee to cover credit underwriting and application processing.
  • Application fee: Application fees aren’t common, but they are possible. You may want to skip lenders that charge you to apply.
  • Late payment fee: Many lenders charge a fee for making late payments. Check to see if the lender has a grace period — some may levy fees only if you are 10 or more days behind.
  • Over limit fee: An over limit fee could apply if you borrow past your credit limit.
  • Annual or monthly fee: You may need to pay a maintenance fee every year (or month) that your line of credit is open.
  • Transaction fee: Sometimes called a draw fee, this means some lenders may charge you to access your line of credit. Keep this in mind when deciding if a personal line of credit is your best option.

Personal line of credit pros and cons

ProsCons
 Flexible. Only borrow what you need, and only pay interest on what you borrow.

 Competitive rates. Personal lines of credit tend to have lower interest rates than credit cards.

 Future funding. A line of credit can be helpful for long-term projects with no set end date. 		 Not everyone qualifies. In most cases, you need to have good to excellent credit to get a PLOC.

 Unpredictable monthly payments. Your monthly payment fluctuates based on variable interest rates and how much you draw.

 Fees. Between annual fees and transaction fees, PLOCS can get expensive.

 Interest. Interest accrues as soon as you draw from your PLOC.

How can you use a personal line of credit?

You can use a personal line of credit for nearly anything. In particular, this type of funding can be a helpful way to tackle ongoing expenses. These could include home improvement or medical bills related to a chronic illness.

If you’re juggling multiple credit card bills and you have strong credit, you could also use a PLOC for debt consolidation.

Many banks also offer a personal line of credit as overdraft protection. In this scenario, your bank will charge overdrafts to your line of credit, eliminating overdraft fees. You will, of course, have to pay the charge back, plus interest.

What banks offer a personal line of credit?

Although personal lines of credit may not be as common as personal loans, many banks and credit unions offer them. There’s a catch, though. Oftentimes, you must be a current customer to be eligible. Some lenders may even require you to be a customer for months before you can apply.

Whether you can get a PLOC is subject to credit approval, which varies by lender. Still, this information should get you started.

LenderLoan amount
Fifth Third Bank (OH)$5,000 to $100,000
First Tech Credit UnionUp to $25,000
KeyBank$250 to $5,000
PenFed Credit Union$600 to $25,000
PNC Bank$1,000 to $25,000 ($5,000 in California)
Regions Bank$500 to $50,000
US BankUp to $25,000

How to get a personal line of credit

Getting a personal line of credit follows a similar process to getting other types of loans.

Check your credit score

First, check your credit score for free using LendingTree Spring. An unsecured personal line of credit usually requires a credit score of at least 680. If your score needs some work, you may want to seek out an alternative form of funding.

Review your budget

A personal line of credit doesn’t have a set borrowing limit. At least, not in the traditional sense. As long as you’re in your draw period, within your credit limit and making minimum monthly payments, you can borrow.

Even so, it’s helpful to know about how much money you’ll need on a rolling basis. This can help you avoid taking on unnecessary debt.

Research lenders

Check with your bank or credit union to see if it offers personal lines of credit. If it does, start there. But that’s not where your search should end.

You should also research other banks and credit unions that offer personal lines of credit and compare their features. Pay special attention to advertised minimum APRs, fees and customer service reviews.

Normally, you would prequalify to compare offers, but prequalification isn’t usually possible on lines of credit.

Apply for your line of credit

Once you’ve narrowed down the personal line of credit that best aligns with your needs, it’s time to apply.

If you’re borrowing from a new-to-you bank or credit union, your first step will be to join. Then, you can apply for your line of credit (unless the lender has a waiting period before it will allow you to do so).

Start borrowing

Once the lender approves you, it may send you a card or a checkbook so you can access your line of credit. Your first repayment is usually due about 30 days after you start drawing.

Can you get a personal line of credit with bad credit?

You might be able to get a personal line of credit with bad credit, but it’ll be tough. Lenders usually reserve lines of credit for borrowers with FICO scores of at least 680 (sometimes higher).

However, there are several types of lines of credit, including secured. A secured PLOC requires collateral (usually a savings or investment account).

Secured loans and lines of credit can be easier to qualify for since the lender can repossess your collateral if you don’t pay. Still, bad-credit borrowers might not be eligible, and those who are will likely pay high rates.

Personal line of credit alternatives

Even if a personal line of credit doesn’t seem like a good fit, you may still have options.

 Personal loan

Personal line of credit vs. personal loan

A personal loan may be best if you need a lump sum of cash rather than a stream of funds. If you have a one-time need for money and know how much that will be, a personal loan may be for you.

A personal loan will give you a lump sum of money that you will pay back in monthly installments, plus interest. Like lines of credit, most personal loans are unsecured. Unlike lines of credit, personal loans come with fixed interest rates.

You can get a personal loan from a wide variety of lenders. Loans from brick-and-mortar banks tend to be best for good-credit borrowers due to stricter eligibility requirements. Alternatively, it’s usually easier to qualify for online loans, but they typically have higher APRs.

 Credit card

Personal line of credit vs. credit card

Compared to credit cards, a personal line of credit may be better for large, infrequent purchases. Groceries and other everyday retail purchases make more sense for credit cards, especially if you earn cash back rewards and pay your bill in full each month.

Interest rates may be lower on a personal line of credit, but that doesn’t mean they are always less expensive. Credit cards come with a built-in grace period. You won’t have to pay interest as long as you pay your balance in full every month.

Also, some lenders charge a transaction fee every time you draw from your PLOC. These fees don’t apply to credit cards.

 HELOC

Personal line of credit vs. HELOC

Due to generally lower interest rates, you might consider a HELOC over a personal line of credit. But that’s assuming you’re a homeowner and you are certain you can pay back what you borrow.

A home equity line of credit (HELOC) is like a personal line of credit, except it uses your home as collateral. Since a HELOC is secured, it usually carries a lower interest rate than unsecured personal lines of credit.

Still, HELOCs can be risky. If you don’t pay back your HELOC, the lender can foreclose on your house. HELOCs also usually come with closing costs that can range from 2% to 5% of your HELOC limit.

Frequently asked questions

A personal line of credit works sort of like a credit card. The lender gives you a credit limit, and every time you borrow, you use up some of your credit line. When you pay it back, that credit becomes available for you to borrow from again.
 
You can use a personal line of credit for almost anything, but they make the most sense for ongoing-but-infrequent expenses. Examples here could be home repairs or medical bills.

You normally need to have a credit score of at least 680 to qualify for a personal line of credit.

A personal line of credit can affect your credit score in a few different ways. When you apply, your credit score might drop a little due to the hard credit hit. On the other hand, your credit score will likely go up as long as you make on-time payments.
 
A personal line of credit could also improve your score because it diversifies your credit mix (which accounts for 10% of your credit score). Managing several different types of loans is a signal to lenders that you are a responsible borrower.