Loan Types: A Guide on Personal Loan and Lines of Credit

There are many types of loans a person can obtain. Each loan has a different interest, time frame, and principal amount. Understanding each one can help you determine which one fits you.

Two of the most popular loans are personal loans and lines of credit. These loans are offered by banks, credit unions, and online lenders. But many people interchange or confuse the two.

In this guide, we will discuss the difference to help you decide which one of them fits your needs.

Characteristics of Personal Loans

Personal loans are loans that can be obtained for different reasons. When you take out a personal loan, you and your lender agree on the amount of money borrowed and the loan terms.

Should you decide to borrow more, you cannot borrow more than the money you owe even though you already paid the amount you owe. Suppose you took out a $5000-loan, with $3000 of it already paid. Should you need to borrow $3000 again, you would need to start a new loan in addition to your current one.

As for the interest, personal loans offer fixed interest rates. The great thing about fixed interest is knowing how much you owe each month. You can more easily plan your budget each month. It reduces the chances of financial surprises.

Also, personal loans are paid on a fixed monthly schedule. The schedule can make it easier for you to pay the principal and interest rather than spending it in one sum. It will also ensure that your loan is fully paid off by the end of the repayment term.

Characteristics of Lines of Credit

A line of credit is a type of loan wherein you are granted funds to use and repay immediately after a specified period. Just like any loan, a line of credit will charge interest as soon as money is borrowed. Unlike the personal loan, the interest for lines of credit is variable.

Since your interest rate is tied to a financial index, the interest rate can go up or go down. It’s difficult for a borrower to predict the amount of money to pay each month. Your lender will also not give you the principal amount in one sum, but you can only borrow up to that


For example, you borrowed $10,000. You can borrow $9,000 and pay it back, then borrow $5,000 again and pay it back. The rule is you can borrow less of your borrowed money and repay it, to borrow again, but you can’t borrow more than the borrowed amount.

It’s also much more flexible than a personal loan. Lines of credit are perfect for emergencies because you can borrow as much money as you need. However, payment isn’t as simple, because you won’t have a set monthly payment.


You can choose a personal loan if you plan to borrow for a specific purpose, while a line of credit is ideal for emergencies. Personal loans also have a set payment each month while lines of credit may vary. It’s up to you to pick which of the two will work best.

Mid-Town Finance Company can give you ,personal loans in Birmingham, Alabama. Our business makes straightforward, fair, and honest loans. Contact us to learn more about our loan offers.