4 Times to Use a Line of Credit Instead of a Personal Loan

Two popular and versatile borrowing options are personal loans and lines of credit. Personal loans offer you a lump sum of money that you can pay back in equal monthly installments plus interest. On the other hand, lines of credit let you access funds as needed. You can then pay back at least the minimum payment each month, and you'll only pay interest on the money you withdraw.

Both products serve their purposes, but below, we'll explore a few instances in your life where you should consider a line of credit instead of a personal loan.

1. Emergency Fund

Both personal loans and credit lines are viable ways to get an emergency fund fast — but a line of credit may be a better option.

With a line of credit, you don't have to pay anything until you draw from the funds. This makes credit lines a fantastic tool if you're still working on building your emergency fund or if you'd like some additional cushion.

2. Home Repairs/Improvement

Many people take out some debt to fund home repairs and improvements. For these types of expenses, lines of credit may be a better option than personal loans.

With personal loans, you have to guess the exact amount to borrow to minimize your monthly payments and interest. If you borrow too much, you may waste money. And if you borrow too little, you may not be able to complete your project.

On the other hand, with a line of credit you can access only the funds you need at your discretion. Doing so gives you better control over your home improvement expenses and saves you plenty of interest.

3. Weddings

Weddings can be costly, and a lot of different expenses go into making them happen. Location, ceremony and reception venues, photography, and catering are just a few examples of expenses you may need to cover for a picture-perfect wedding.  

With so much to keep track of, a line of credit may work better than a personal loan. You can keep your line of credit on hand in case you run into wedding cost overruns or find that you forgot to plan for something. Then, you can easily withdraw funds when these things happen instead of taking out another loan.

4. Travel

Many people who borrow a little extra to go on their dream vacation tend to use personal loans. However, lines of credit may work better.

You have to take out a personal loan ahead of time, leading to more guesswork and the potential to borrow too much or too little. Then, you'll have the extra debt hanging over your head the whole trip, even if you didn't use it all.

If you travel with a line of credit, you'll only need to draw on the funds if you need them. You can spend your available cash as needed throughout the trip, and your line of credit is there to help if you need a few extra bucks. 

Lines of Credit: Flexibility and Accessibility

When it comes down to it, lines of credit offer more flexibility than personal loans, making them the ideal choice for situations where your monetary needs may be unpredictable. Instead of trying to guess the exact amount of money you need to borrow, you can draw on your line of credit as needed. Then, you'll have a bit more wiggle room when it comes time to pay the funds back.

Notice: Information provided in this article is for information purposes only. Consult your financial advisor about your financial circumstances.

Source: iQuanti, Inc.

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Categories: Personal and Family Finances

Tags: Financial Services, Line of credit, Personal Finance, Personal Loans