What is a personal line of credit?

The average credit card interest rate spiked from 15% in 2019 to 21.59% in 2024, according to the Federal Reserve. As a result, lower-cost alternatives like personal lines of credit may be more appealing.

Like credit cards, personal lines of credit give you access to a revolving credit line. However, they tend to come with lower interest rates and higher credit limits. Here's a closer look at how they work, where you can find them, what to consider before getting one, and alternatives.

How does a personal line of credit work?

A personal line of credit works similar to a credit card. Upon approval, the lender gives you access to a credit line you can use, repay, and use again. You may be given a card or checks by which to access the credit line, or can withdraw (often for a fee) from an ATM.

However, unlike credit cards, the ability to draw from the credit line may be limited to a certain timeframe - for example, five to 10 years - followed by a repayment period, such as 10 years.

Interest and fees

Most personal lines of credit have a variable interest rate that is based on an underlying benchmark rate, such as the prime rate. But the rate you're approved for depends on your credit score. Once you withdraw from your credit line, the lender charges interest on your outstanding balance until it's paid off. Additionally, they may charge fees for origination, account maintenance, withdrawals, and more.

For example, Bank of America offers personal lines of credit to existing customers with variable annual percentage rates (APRs) from 12.5% to 22.5%, but you'll need a minimum 680 FICO score to qualify.

Repayments

Lenders often require borrowers to make interest-only payments during the draw period. Then, once the draw period ends or you close your account, you'll lose access to the previously available credit line and enter the repayment period. Others offer a continuous draw period.

Repayment options vary by lender but may include regular monthly payments, balloon payments, loan conversions, or deferment through a renewal.

Balloon payment

A balloon payment refers to paying off the balance in a lump sum. You may do so out-of-pocket or by refinancing the amount with another credit product. For example, a personal loan with a fixed APR and repayment term could be a good option to pay off a line of credit.

Term loan conversion

The lender may offer to convert your credit line into a term loan so you can repay the amount through fixed payments over a set term without refinancing.

Deferred by renewal

If your draw period ends and you want to keep the credit line open, the lender may allow you to renew it. In this case, you'll regain access to the credit line and make payments according to your updated agreement.

Where to get a personal line of credit

While harder to find than personal loans or credit cards, personal lines of credit are available from select banks and credit unions. Here are a few examples:

• First National Bank: Offers unsecured credit lines ranging from $2,500 to $25,000 with variable interest rates.
• PNC Bank: Offers unsecured personal credit lines from $1,000 to $25,000 with variable APRs from 16.25% to 22.55% and continuous draw periods. Requires a $50 origination and annual fee.
• Truist: Offers unsecured credit lines from $5,000 to $50,000 with variable rates starting at 13.69%.
• US Bank: Offers U.S. Bank clients unsecured personal credit lines up to $25,000 with variable interest rates from 12.50% to 22.50%. No annual fee but other fees apply such as a cash advance ATM fee and cash-equivalent fee.
• First Premier Bank: Offers secured and unsecured credit lines from $2,500 to $100,000 with variable interest rates.

Types of lines of credit

If you're thinking about getting a credit line, personal lines aren't your only option. Here's how they compare to business credit lines and HELOCs:

• Personal: Personal lines of credit can be secured or unsecured and are meant to be used for personal expenses like home improvements and emergencies. Collateral options will vary by lender but can include personal assets like savings accounts or CDs.
• Business: Business lines of credit can also be secured or unsecured and provide access to credit for business expenses like off-season working capital or inventory. Collateral options can vary but may include a CD or blanket lien on your business assets.
• Home equity lines of credit (HELOCs): HELOCs are credit lines backed by a portion of the equity in your home and can often be used for personal or business expenses. They tend to have lower interest rates but can come with costly fees and may take weeks to close.

The right credit line type for you will depend on factors like how you plan to spend the funds, your creditworthiness, and the collateral you have available.

Common uses for a personal line of credit

Personal lines of credit are commonly used to finance personal expenses, such as:

• Home improvements
• High-interest debt
• Medical expenses
• Moving expenses
• Personal events like weddings or funerals
• Unexpected income gaps
• Travel
• Emergency expenses
• Education costs

Personal line of credit pros and cons

Personal lines of credit can be a helpful credit product but also come with a few potential drawbacks.

How to get a personal line of credit

The first step to get a personal line of credit is finding a bank that offers them. The list above can help with that. From there, you can apply on the bank's website or at a physical branch near you. Note that some banks only offer personal lines of credit to existing customers.

The application process is typically similar to applying for a personal loan. The lender will evaluate the level of risk you present by reviewing your credit scores, credit history, income, debt obligations, and employment situation. You'll need to allow a hard credit inquiry, which may ding your credit score by a few points, and may need to provide documents to back up your application.

Upon approval, the lender will present you with an offer that includes a proposed credit limit, APR, and repayment plan.

Alternatives

If a personal credit line doesn't sound like the right fit for your needs, consider these alternative credit products:

• Personal loans: Personal loans offer a lump sum upfront that you repay, plus interest, through fixed monthly loan payments over a set term, often 2 to 7 years. They're widely available, typically offer amounts up to $50,000, and have a fixed interest rate that won't change. The average interest rate on a 2-year personal loan was 12.49% in 2024, according to the Federal Reserve.
• Credit cards: Credit cards are revolving credit lines with continuous terms. While they typically come with higher interest rates and lower credit limits than personal credit lines, they're widely available and often have perks (e.g. rewards, welcome bonuses, and member benefits).
• Home equity loans: Home equity loans are term loans backed by a portion of the equity you've built in your home. They come with low interest rates and can be easier to qualify for, but put your home at risk and can come with expensive fees. They can also take a month or more to close, making them unsuitable for emergency loans.
• 401(k) loans: 401(k) loans involve borrowing against your 401(k) balance. While limits vary by employer plan, the maximum allowed loan amount is up to 50% of your vested balances or $50,000, whichever is less. Loans must also be repaid, plus interest, within five years. Though the interest goes into your retirement account, you could owe taxes and a 10% early withdrawal penalty if you can't repay the loan.

Personal line of credit vs a personal loan

Best personal loans

If a personal loan better suits your needs, consider the following:

Methodology

We evaluated the best personal loans based on factors such as customer experience, minimum fixed rate, maximum loan amount, funding time, loan terms, fees, discounts, and minimum credit and income requirements. Our team of experts gathered information from each lender's website, customer service department, directly from our partners, and via email support.

Each data point was verified by a third party to make sure it was accurate and up to date. Read our full lender rating methodology for more information.

FAQ

What happens if I miss a payment on my personal line of credit?

If you miss a personal credit line payment, the lender may report it to the consumer credit bureau and charge a late fee. Once a payment is more than 30 days late, the lender may close your account, report the default to the credit bureaus, and demand payment for the full outstanding balance.

Which banks offer a personal line of credit?

Personal lines of credit aren't as widely available as personal loans but you can find them from select banks including Truist, U.S. Bank, PNC Bank, First National Bank, and First Premier Bank.

Should I get a personal loan or a personal line of credit?

Whether a personal loan or personal line of credit is better depends on factors such as how you plan to use the funds, your repayment preferences, and your risk tolerance. A personal loan is often better if you know exactly how much money you need and plan to spend it immediately. A personal line of credit is better when you aren't sure how much you need or plan to spend it in stages.

How does a personal line of credit affect my credit score?

If you make all your payments on time, a personal credit line can eventually help your credit score and strengthen your credit report. However, it can cause your scores to drop initially due to a hard inquiry during the application process and a reduction in your average account age. Further, your credit utilization level during the draw period can help or hurt your score.