What is a personal line of credit?

A personal line of credit (PLOC) is a revolving loan with a set credit limit from which you can borrow, repay, and borrow again — paying interest only on what you use. It works like a credit card but typically has lower rates and deposits directly to your bank account.

How a personal line of credit works

A personal line of credit gives you access to a pool of funds up to your approved limit. You draw from it when you need cash — typically via bank transfer or a linked account — and only pay interest on the outstanding balance. As you repay, your available credit replenishes. This revolving structure makes it fundamentally different from a personal loan, which delivers a lump sum upfront and requires fixed payments from day one.

Secured vs. unsecured personal lines of credit

Unsecured personal line of credit: No collateral required. Approval depends on creditworthiness — most traditional lenders require 670+ FICO and documented income. Limits typically range $5,000–$50,000 at 8–24% APR. Best for borrowers with good-to-excellent credit who need flexible access to funds.

Secured personal line of credit: Backed by collateral — commonly a savings account, CD, vehicle, or home equity. Because the lender's risk is offset, approval is more accessible for borrowers with bad or fair credit. A home equity line of credit (HELOC) is the most common secured consumer line — it uses your home's equity as collateral and typically offers the lowest rates (often prime + 0.5–2%). The trade-off: your home is at risk if you default.

Personal line of credit vs. personal loan

Structure: Line of credit is revolving (draw/repay/redraw); personal loan is installment (lump sum, fixed payments).
Interest: PLOC charges interest only on drawn balance; personal loan charges interest on full amount from day one.
Flexibility: PLOC is better for ongoing or unpredictable expenses; personal loan is better for one-time fixed-amount needs.
Rate structure: Personal loans typically have fixed rates; PLOCs typically have variable rates tied to prime.
Availability: Personal loans are available from more lenders (including online); PLOCs are mainly offered by banks and credit unions.

When a personal line of credit is the right choice

PLOCs work best when your funding need is recurring or uncertain in size — home repairs, seasonal expenses, or a business cash-flow bridge. For small business owners, a business line of credit often serves this purpose better, since it's underwritten on business cash flow rather than personal credit. See How Does a Business Line of Credit Work? or apply with ClearValue Lending to explore business-side options.

Worked example — personal line vs. personal loan

You need up to $10,000 for home repairs over 6 months but aren't sure of the exact amount. A $10,000 personal loan charges interest on $10,000 from day one. A $10,000 personal line of credit lets you draw $3,000 in month 1 and pay interest only on $3,000 — then draw more as work proceeds. Over 6 months drawing an average of $6,000, the PLOC saves roughly 40% in interest vs. the personal loan.

Sources

The CFPB explains revolving credit — including personal lines of credit — as credit that can be borrowed, repaid, and borrowed again up to a limit, with interest charged only on the outstanding balance. — CFPB — What Is a Line of Credit?
The Federal Reserve H.15 statistical release tracks consumer credit rates, showing that unsecured personal lines of credit typically price at prime + 4–12% depending on creditworthiness. — Federal Reserve — H.15 Selected Interest Rates
HELOCs — the most common secured personal line of credit — use a home's equity as collateral. The CFPB notes that defaulting on a HELOC can result in foreclosure, making it higher stakes than an unsecured product. — CFPB — Home Equity Lines of Credit
myFICO's credit education notes that revolving credit lines — including PLOCs — contribute to both the 'amounts owed' (utilization) and 'credit mix' FICO factors, making them valuable tools for credit building when managed responsibly. — myFICO — Credit Education

Key takeaways

A personal line of credit is a revolving loan — draw, repay, redraw — paying interest only on outstanding balances.
Unsecured PLOCs require 670+ FICO; secured PLOCs (backed by savings, home equity, etc.) are accessible to bad/fair credit borrowers.
PLOCs are better than personal loans for unpredictable or recurring expenses; personal loans are better for fixed one-time needs.
HELOCs offer the lowest rates but put your home at risk — only appropriate for disciplined borrowers with clear repayment plans.
Small business owners: a business line of credit underwritten on business revenue is usually more accessible and appropriate than a personal PLOC.
Related: Line of Credit for Bad Credit | How Does a Business Line of Credit Work?