Lump sums and credit lines

Personal loans are unsecured loans that come in either a lump sum or a revolving line of credit.

Lump sums, also called closed-end loans, usually carry a fixed interest rate, while lines of credit carry an adjustable rate. A line of credit may cost more than a closed-end loan because it moves with fluctuating interest rates.

The term of a closed-end loan depends on your credit standing -- the better your credit, the longer the bank will give you -- and how much you borrow. The shorter the term, the less the loan is going to cost.

For example, if you borrow $10,000 at 15 percent interest and pay it back in 48 months, you will pay $278.31 a month, or $13,358.88. If you pay it back in 60 months, your monthly payments are less -- $237.90 -- but you will pay a total of $14,274. (For loan repayment calculations go to the bankrate.com loan calculator.

Line of credit unsecured loans work a little like a credit card with a time limit. A bank may approve you to borrow $10,000 for three years. Your credit revolves as you pay it off -- borrow $2,000 and pay it off and you can still borrow $10,000. If it's not paid off you can only borrow $8,000. Either way, you must pay off everything when the three-year time limit comes up.

To pay back lump sums, banks usually issue coupon books. Lines of credit often come with checks so you can withdraw different amounts. Keep in mind that automatic payments deducted from a checking or savings account might cut your interest.

How much can you expect to haul away from the bank on your own recognizance? The amount you can borrow unsecured can vary from $1,000 to about $35,000. Bankers -- you understand bankers, don't you? -- can get antsy about loaning large amounts to the average customer without collateral.

-- Updated: March 19, 2004