Hi fruitbean! It's great that you're enjoying English so much that you'd like to do more of it!
I would describe the difference between the two subjects as a matter of breadth and depth. In VCE English, the focus is on breadth; students are asked to demonstrate a wide variety of analytical and communication skills across very different texts, purposes and audiences. In VCE Literature, the focus is on depth; students are expected to dive into the specific of each text, and build and defend a sustained interpretation.
So I would recommend you think about what it is that you enjoy in your current English studies. Do you enjoy writing in multiple modes, for varying audiences, to achieve overlapping purposes? Or is it that you really enjoy tearing apart each text for its symbols, meaning, and building your own interpretation? Do you enjoy reading many different text types like transcripts, articles, books, short stories and poems? Or do you mainly enjoy longer texts or collections of texts (eg a poetry collection)? In terms of your writing talents, are you able to sustain a discussion on one particular aspect of the text?
In the end, I think if you feel you'd enjoy VCE Literature, you should go for it! But my above questions hopefully give you a fuller picture of what the subject is like, and how it might be interesting (or not) for you.
Personally, I did the other way around, when I was in VCE, so so so so many years ago. I did Literature (as well as English) in Year 11 for fun - the marks didn't matter so I didn't feel the pressure and I really enjoyed it. In Year 12 I dropped it and just did English, because I was lazy and wanted to do the bare minimum study I could while still getting ok marks.
Whatever your choice, I'm sure you'll be fine if you apply yourself and give it your best shot! 🙂