The Difference Between Personal Loans and Lines of Credit

Although personal loans and lines of credit have many similarities, there are a few key differences that separate these two types of lending products. Each comes with its own benefits, drawbacks, and risks, so be sure to understand what’s offered when undertaking this kind of debt.

Before you can qualify for a loan or line of credit, you will also need to prove you have a steady income, bank account, and permanent address. The majority of lenders will require a credit check to ensure you’re a good fit for borrowing the money.

Personal loans

Personal loans provide you with a fixed lump sum payment for a large, one-time purchase. You are required to pay back the money in regular installments across the term of the loan. In Alberta, you can typically borrow up to $50,000 over a period of six to 60 months.

The two main types of personal loans are secured and unsecured. Secured loans mean you need to pledge an asset, such as your car or house. If you can’t pay it back, the lender can repossess your asset. Unsecured loans don’t require you to pledge an asset. But, if you can’t pay it back, you risk the lender suing you.

Common situations for personal loans:

  • Buying a car 
  • Paying for a wedding
  • Home renovations
  • Debt consolidation


  • The money is available to you up front
  • Debts can be consolidated under lower interest rate
  • Quick application and approval process
  • Stable payments over time


  • Monthly payments can be large
  • Difficult to sustain for households with smaller budgets
  • Harsh penalties and fees for late payments
  • Non-payment results in poor credit
  • Collateral may be required

Lines of credit

Similar to a credit card, a line of credit allows you to borrow a variable amount of funds up to a certain limit. You can take out money whenever you need, allowing for flexibility. As you repay what you’ve borrowed, the line of credit is still available to you. 

Like personal loans, lines of credit can be secured or unsecured. Securing assets or investments may allow you to have a higher borrowing limit and lower interest rates. Lines of credit typically have variable interest rates, so the minimum payments can fluctuate from month to month.

Common situations for lines of credit:

  • Overdraft protection
  • Emergency funds
  • Home renovations
  • Daily spending


  • Easy access to money
  • Repay as much or little as you like each month
  • Often lower rates than loans or credit cards
  • Some financial institutions offer low to no fees


  • Risky for spending to get out of control
  • Volatile interest rates
  • Flexible payments mean that you may only be paying interest, not principal
  • Collateral may be required 

What happens if I can’t pay off my personal debt?

Our compassionate and practical experts are here to help. With our consumer debt solutions, you can get your finances back on track. Reach out to us to book a free and confidential consultation.