You know you have good credit but do you get a loan or use a line of credit. There are some key differences between the two, and you need to consider their pros and cons for your particular situation.
Personal Loan or Line of Credit: Which One Is Better For You?
A personal loan is when you get the entire loan all at once, allowing you to use it as you see fit. A line o credit means you borrow a certain amount of money and draw it as you need it – similar to a credit card, but money is only paid on the amount used.
Interest rates are usually hirer on a line of credit than a personal loan, but it also comes with a variable interest rate whereas personal loans have fixed interest rates. A line of credit is great for difficult to predict expenses because the money is there when you absolutely need it.
When it comes to loan terms, personal loans come with two to five-year repayment terms with a fixed interest rate. On the other hand, a line of credit is revolving credit, so you borrow money until you hit the limit you were given. As soon as you pay on your debt, you get the money back. For example, if you have a $2,000 line of credit and pay $400 of a $1,600 bill, you can borrow $800 on the line of credit.
The best time to get a line of credit is when there is a dry spell in income – contractor, gig worker, self-employed, etc. You pay interest on only the money borrowed without applying for a new loan.
The best time to get a personal loan is when you have a specific need such as a medical bill, home repairs, debt consolidation, etc. You know how much money is necessary for these costs and you can borrow what is needed – nothing more.
How To Attain A Personal Loan or Line of Credit
The majority of financial institutions – banks and credit unions provide lines of credit, but you must have an account to be approved for one. Applying for either one is the same, with the lender looking at your credit history and verifying that your credit is good and you can pay the loan/line of credit back.
However, qualifying for the line of credit can be far more difficult, as lenders want powerful earnings and credit history.
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