What’s the Difference Between a Line of Credit and Loan?

If you need money to cover some expenses, you can take out a line of credit or loan. But what are the differences between these two financing options? While a loan provides you with a specific lump sum to borrow, with a line of credit, you get approved to borrow money up to a certain credit limit. 

Similar to a credit card, a line of credit allows you to draw cash when you need it. A loan differs in that you get all the money you borrow upfront in one amount. Here’s a closer look at a line of credit vs. loan. 

What is a line of credit?

A line of credit is a revolving credit account that you can draw money from up to a specified amount. With lines of credit, you’ll only pay interest on the amount you borrow. You can use a line of credit for any expense, whether you’re going on vacation or paying bills.

How a line of credit works

If you choose to apply for a line of credit, you can expect the following: 

Borrowing Amount

Once a lender looks at your credit history and considers your ability to repay, they may approve you for a certain borrowing limit. Upon approval, you’ll have the flexibility to borrow as much or as little as you’d like, up to that set limit.

Interest Rate (Annual Percentage Rate - APR)

You’ll pay interest on the amount of money you withdraw, rather than your entire limit. If you get approved for $2,000, for example, but only take out $500, you’ll only be responsible for interest charges against the $500. 

Repayment Schedule and Loan Term Lengths

Your line of credit will have a recurring billing cycle. With each billing cycle you will receive a periodic statement outlining all transactions (draws, payments, interest charges, etc.) which took place during that billing period. The billing statement will provide a minimum payment due and a total balance due.


The fees you can expect to pay will depend on the amount you withdraw, the lender you use for your line of credit, and the state you live in. To see the line of credit fees applicable for Advance America’s lines of credit, enter your zip code here

Types of lines of credit

Here are a few examples of lines of credit:

  • Personal line of credit
  • Home Equity Line of Credit (HELOC)
  • Unsecured line of credit
  • Secured line of credit
  • Business line of credit

What is a loan?

A loan is a sum of money that you can borrow from a lender and pay back with interest. Loans can either be unsecured or secured by an asset you’ll provide as collateral, like your car or house. The amount of money you can receive from a loan may depend on your creditworthiness and ability to repay

How a loan works

If you pursue a loan, keep these things in mind: 

Borrowing Amount

After a lender evaluates your credit, they may approve you for a fixed amount of money. Once approved, you’ll get this cash in one lump sum. 

Interest Rate (Annual Percentage Rate - APR)

A lender will decide on a fixed interest rate that’s based on your credit and income. You’ll need to pay interest charges on your entire loan amount. While good credit will increase your chances of landing a lower interest rate, you can still get approved for a loan with bad credit. 

Repayment Schedule and Loan Term Lengths

With a loan, you’ll receive a fixed loan term and repayment schedule after a lender approves you. While some loans are shorter and must be repaid within a few weeks or months, others can last for several years. The shorter your term is, the higher your monthly payments will be.


The lender and loan type you select will determine the fees you’ll have to pay. Some of the most common loan fees include application fees, origination fees, and late payment fees.

Types of loans

Here are a few examples of loans:

  • Payday loans
  • Installment loans
  • Title loans
  • Student loans
  • Home equity loans

Differences between loans and lines of credit

While loans and lines of credit can both help you pay for things like car repairs or unexpected emergencies, they’re not created equal. The chart below highlights some of the distinct differences between them.






Lines of Credit


Borrowing Amount


A lump sum of money upfront.


The flexibility to borrow as much or as little as you'd like up to a certain credit limit.


Interest Rate


Set at the start of your loan and based on your income and credit.


Set at origination and based on your income and credit.

Interest is only assessed on the amount you withdraw.


Repayment Schedule and Loan Term Lengths


Fixed, based on agreed upon schedule. 


You receive periodic statements at recurring intervals. Repayment based on the activity (withdraws and payments) on your account.




Typically, a fixed amount based on loan amount.


Interest owed is determined by the amount you withdraw, payments you have made and the amount of days you had money outstanding.

How to choose between a loan vs. line of credit

If you know exactly how much money you need to pay for a certain expense, like new tires for your car, a loan may make sense. With a loan, you’ll be less likely to borrow more money than you need.

On the other hand, if you’re unsure of how much money you’ll need because you’d like to remodel your kitchen, for example, a line of credit is the way to go. It can give you the flexibility to borrow as much or as little as you want. It can also help you meet monthly bill payments on time, without worrying about when your paycheck will land. 

Advance America offers loans and lines of credit to meet your needs

Advance America is pleased to meet the needs of a variety of customers through a line of credit and a number of loan options. If you’re interested in a loan, you can choose to apply for a payday loan, title loan, or installment loan. 

No matter which loan you go with, you can enjoy an easy online application process and fast funding. In the event you prefer a line of credit, you can apply to get one for up to $2,500, depending on your credit and where you live.


The Advance America advantage

Since 1997, Advance America has helped millions of hardworking people with a variety of financial solutions including Payday Loans, Online Loans, Installment Loans, Title Loans and Personal Lines of Credit.
148+ million
loans issued
1,100+ stores
and online loans
24+ years
providing loans