Should You Get a Line of Credit or a Loan?
NEW YORK, November 1, 2022 (Newswire.com) - iQuanti: Deciding where to borrow money from in a time of need can be a hassle when it matters most. But luckily, there are many options to consider, including a line of credit and a loan. Knowing the options you have can help you decide which is right for you when the time comes. For a better understanding of a life of credit vs. loan, here is everything you need to know.
What is a line of credit?
A line of credit can come in many forms, including a credit card or equity line from an investment like your home. With a line of credit, you can borrow as much as you need so long as it falls under the credit limit. When it comes time to pay the amount back, there are generally more flexible guidelines you can follow, such as no hard deadline to repay the borrowed amount and varying interest rates. Types of credit lines include:
- Revolving credit
- Installment credit
- Secured or unsecured credit
What is a loan?
A loan, on the other hand, is a more rigid lending option. When you apply for and take out a loan, you agree to the terms upfront, including the loan amount, the date you need to pay the loan back, the minimum monthly payment, and any other important details. You are then obligated to repay the loan according to the terms and may not have much flexibility outside of that initial agreement. It's also important to mention that there are numerous types of loans, including:
- Cash advances
- Personal loans
- Business loans
Line of credit vs. loan
So when should you choose a line of credit or a loan? It depends on your needs. Remember, not all lines of credit or loans are created equal. Here are some instances when each option may make sense:
When to choose a line of credit
When you're not sure how much money you'll need or want flexible access to funds, a line of credit is the way to go. While there are more variations, the flexibility of the credit can help you to fund the things you need. Not to mention, if the cost is not set in stone, you can access more of that credit as needed.
When to choose a loan
Loans can work well for planned one-time large purchases. Because they're predictable, like the purchase, these are easier to manage as you repay with set terms to follow. Examples of when a personal loan may be perfect include: furniture or appliance purchases, home repairs, moving expenses, and paying down other debts.
The bottom line
Both loans and credit lines are great tools for helping to afford expenses, both unexpected and planned. While you may have access to both, the choice should come down to the flexibility you need, the repayment terms you want, and also, which options are readily available to you when you need them most.