These loans are given permission after checking the person’s credit score as well as the payments which have been made in the past by him or her.
Loans are non-revolving as the amount of money once taken cannot be taken again and again from the lender, and the amount has to be paid off to the lender by paying the capital amount as well as the rate of interest on it.
Line of credit works differently as this is a revolving credit just like a credit card but can be taken to handle businesses.
In the line of credit, the amount can be withdrawn by the borrower any time he wants to and can pay it back later also with other loans they are taking.
What are loans?
A loan is the amount of certain money taken by the borrower to fulfil his or her need, but the amount of loan is taken fully while taking the loan.
You have to pay the principal price as well as the rate of interest fully then only you can opt to take a loan again; otherwise, you cannot take, and it will affect your credit score.
There are many types of loans:-
- Secured loan:- This loan is taken against an asset of the borrower like if he or she takes a car loan, then they will have to keep their car as collateral if the borrower does not return the money. Then they will take away the car that has been purchased by him.
- Unsecured loan:- This loan does not have a collateral to keep and the lender solely trusts on the borrower’s credit score and lends the money, but one more difference is that the interest rate on these type of loan is comparatively higher than the secured loan as there is no guarantee if the money will be given back or not.
What is a line of credit?
A line of credit is different from the loan as when a line of credit is approved then the bank or the financial institution keeps a certain limit of the amount which the borrower can take regularly.
This concept is also known as revolving credit and is very similar to credit card loan as they have the same properties.
There are different type of line of credit:-
- A personal line of credit:- This concept is the same as the unsecured loan as it does not have any collateral and loan is given on the basis of the borrower’s credit score.
- Home equity line of credit:- It is a type of credit that basically uses property as a security. It is one of the most secured facilities especially when compared to the other unsecured ones in the market. It carries twice as much interest rate as compared to a standard home loan.
Most of the people take a loan in case they want to need funding for their upcoming project, pay for the amount of their house, pay your taxes, pay unexpected medical expenses and also you will find a loan which will offer a lower rate of interest.
Depending upon your situation you have to choose which loan you want to take it can either be a personal loan or you can also take a line of credit, but before taking any one of the loans blindly, you will have to do some research on both the type of loans and select the best one for you.
When you take a personal loan, you can take the amount of loan for a fixed period of time, and also you have the option to pay the full amount back in just one payment or you can also take the option of monthly fixed instalments.
In the line of credit, you can take the loan for the amount you want and can also get the flexibility of time in which you can repay the loan taken, but the only thing is that its interest is higher than a personal loan.
There is the situation which will suit the type of loan which you take in some cases it can be the line of credit it can also be personal loan depending on the amount and also the reason for which you want to take the loan for.
To select the best, you will have to know the perfect difference between them to compare and then select one out of the two.
Personal loan Vs line of credit
A personal loan is also called as a signature loan, and it got its name from the fact that you don’t have to keep anything as collateral such as your home, car as it is an unsecured loan.
Line of credit is just like credit card loan which means that you can take a loan once and then pay back the full amount and you can continue to take that loan again and again if you want to. Like personal loan you will be selected to take a line of credit unsecured by just signing the agreement paper and to buy a secured line of credit you will have to put up an asset as collateral just in case something happens and you are not able to pay back the full amount.
Repaying the amount borrowed
To repay a personal loan, you have a fixed interest which you will have to pay in monthly fixed instalments, but in line of credit, it is totally opposite as you will have to repay the amount of money borrowed by you and interest will be charged on every transaction that has occurred and also the time period for which it has been taken and also overtime will be charged if you fail to repay it.
If you have taken a secured loan, then the asset on the collateral will be sold to repay the loan.