What's the Difference Between Personal Loans, Credit Cards, and Lines of Credit?

When you need access to funds, it can be difficult to decide which borrowing option is best. Personal loans, credit cards, and lines of credit each offer different benefits, and choosing the right one depends on your financial goals, repayment ability, and how you intend to use the funds.

Personal Loans

A personal loan provides a lump sum of money that you repay over a fixed period with regular, scheduled payments. These loans are commonly used for large expenses like home renovations, car repairs, or consolidating high-interest debt.

There are two types of personal loans:

• Secured personal loans: Backed by collateral (like a car or home). These may offer lower interest rates or higher loan amounts, but approval can take longer.
• Unsecured personal loans: Not backed by collateral. Approval is typically based on your credit history. These loans often come with faster processing but higher interest rates.

Fig offers unsecured personal loans with a fixed repayment schedule, delivered through a fully digital and transparent application process.

Credit Cards

Credit cards allow you to borrow funds up to a pre-set limit, and you can carry a balance from month to month. They're best suited for everyday purchases and short-term borrowing.

Advantages:

• Widely accepted online and in-store
• Can help build credit when used responsibly
• Some offer rewards, cashback, or purchase protections

Things to watch for:

• High interest rates if you don’t pay the balance in full each month
• Easy to overspend, which can lead to debt accumulation

Lines of Credit

A line of credit gives you access to a set borrowing limit that you can draw from as needed. You only pay interest on the amount you use.

Benefits:

• Flexible borrowing
• No need to reapply once set up
• Usually lower interest rates than credit cards

Drawbacks:

• No fixed repayment schedule, which can lead to long-term debt
• Discipline is required to avoid overspending

Lines of credit are useful for ongoing expenses or unpredictable costs, like emergency repairs or fluctuating business expenses.

Which One Is Right for You?

Choosing between a personal loan, credit card, or line of credit depends on your needs:

• Use a personal loan for fixed, larger purchases with a clear repayment timeline.
• Use a credit card for smaller, everyday purchases and when you can pay the balance off monthly.
• Use a line of credit for flexible access to cash when timing or amounts are uncertain.

Understanding how these tools work and their pros and cons will help you make informed decisions and better manage your financial health.

This article is for informational purposes only and does not constitute financial advice tailored to your situation.