The Difference Between a Personal Loan and Line of Credit

Everyone has heard the term loan. Many are familiar with personal loans. How many know what a line of credit is? How many know how personal loans and line of credit are different from one another?

Personal Loan

This is an unsecured loan that has no limitations on borrowings. The minimum or the maximum amount depends on the lender. The interest rates are based on the amount borrowed and the time for which it is borrowed. Also, if one forecloses the loan before the deadline, they need not pay the interest for rest of the loan term agreed upon initially.

Line Of Credit

A line of credit is similar to a credit card. A credit card is where one swipes the card as and when they want credit and repays the amount borrowed, with interest over a period of time as per the agreement. One can find a number of options on https://www.lainaa-heti.fi/jatkuva-luotto/.

In a line of credit, the borrower issues a check for the amount required. One needs to pay only if the credit is used and only the amount used. Once the borrowed amount is returned with interest they are eligible to borrow for the full limit again.

The Difference

Both don’t have a minimum amount. However, with a personal loan, you need to mention the amount required and it is given upfront. In a line of credit, one need not intimate the amount beforehand. They can borrow any amount within the maximum limit, as and when they want. This gives more flexibility for those who want to have some credit handy in case of some unforeseen financial requirements. They need not use it or pay for it if not used.

For Ex: If a person needs to pay rent but is in a financial crisis, they can go out and get either of the loans immediately. With a personal loan, they need to mention in the agreement, the amount required. They can pay the rent only after the amount is credited into their account. With a line of credit, the person already has the credit provision in hand and can just write out a check for the concerned amount and be done with it.

Categories: Finance