Difference between Loans and Lines of Credit
A loan of the general kind and a line of credit are two methods of borrowing money for use by individuals and businesses. Loans may be advanced for the purchase of homes as mortgages, student loans, auto loans or personal loans.
Loans are one-time lump sum extensions which are advanced which need to be returned through periodic installments which are consistent. Lines of credit are usually considered as business lines of credit or home equity lines where a borrowing limit is extended to the client with the option that the client can borrow the money again after the initial sum is repaid. Lines of credit are not revolving lines of credit and in most cases, they do not have an end date.
Differences Between Loans And Lines of Credit
A number of differences exist between loans and lines of credit. Advances for the purchase of homes and cars are usually made through standard loans because they are likely to be secured by an asset. The repayments of the money borrowed is decided when the loan is approved and the borrower will have to make a monthly payment on the scheduled date in accordance with the terms and conditions of the loan.
Lines of credit attract higher rates of interest and the minimum payment needed is smaller. They can create bigger impacts on consumer credit reports and credit scores. The closing costs which are often applied for early payment are different and higher for standard loans than lines of credit where the consumer will only be affected by negative credit reports for a short period of time.
Reasons Why Lines of Credit Are Preferred To Loans
When people make an application for a standard loan they are required to explain when the loan is needed and the reasons why it is required. After approval, the entire sum of money requested will be handed over to the applicant and interest will begin to accrue immediately. A date for the monthly repayment of the loan will also be provided and withdrawn from the borrowers checking account on the date mentioned. As loans are secured, borrowers who are not regular with their payments can find themselves in trouble with the bank.
Lines of credit are different in the sense that the borrower receives the option of borrowing a certain amount of money without having to wait for the disbursal by the bank. Lines of credit do not require the applicant to provide any reasons for why they need the money on how they intend to use it. They can use the funds for purchases of any type or even spend the money on a holiday without the approval of the lender. Lines of credit are more flexible than standard loans but can be expensive because of the higher rates of interest which would be applicable.
Lines of credit represent a borrowing tool which is a lot more flexible because the payments that need to be made are usually much more flexible since the sum of money borrowed and the date of the borrowing are constantly fluctuating. It is to offset this uncertainty that banks are charging higher interest rates.
With a number of card issuers willing to offer unsecured lines of credit people make get an impression that obtaining an unsecured line of credit is an easy job which is not exactly the case. Lines of credit which are offered to consumers may look similar to credit cards but they are definitely not identical. A line of credit does not require any monthly minimum payments, unlike credit cards which always do. Lines of credit are also secured by assets to safeguard the interest of the lender. The flexibility offered by a line of credit is perhaps making it the preferred option among consumers who could be preferring the option of having finances without the pressure of making monthly payments.
More in Loans & Credit
Apple Pays €1.5 Billion as Initial Payment for Back Taxes to Ireland
AppleTechnology is now accelerating at an unprecedented speed. With companies like Apple in its forefront, innovation is what drives the industry...August 22, 2018
Increase Your Home’s Valuation with These Design Hacks!
If you’re a property investor who’s looking for effective ways to increase your home’s value? The real estate experts recommend you...August 22, 2018
Free This Debt to Live a Comfortable Retirement!
As we become an adult, we face extremely challenging experiences like budgeting our salary to pay our bills and responsibilities. We...August 21, 2018
Tesla Stocks Drops to Its Worst Performance in Two Years After Elon Musk’s NYT Interview
Tesla’s shares drop to an astounding $1 billion in a day after the New York Times published an interview with CEO...August 21, 2018
You Should Know This One Hard Truth Before Becoming a Home Flipper!
Sidney Torres is known for being a self-made millionaire. He earned his money by renovating houses in New Orleans. Now that...August 21, 2018
Experts Reveal The Best Way to Build Your Retirement Fund
Everyone wants to have a comfortable retirement. We look forward to the day we finally stop working and start living our...August 20, 2018
Before You Start Searching For Love You Need To Read This 7-Year-Old Boy’s Love Story
Sometimes in life, when you least expect it, that’s when love hits you. Just like this love story about two people...August 20, 2018
Harley-Davidson Employees Enraged with Layoffs After Tax Cut
The iconic Harley-Davidson surprised thousands of its employees when they announced the layoffs, despite the company expecting huge privileges from the...August 10, 2018
How to Ramp Your Business On Social Media Marketing in Summertime
With summer in full swing, now is the time to ramp up social media campaigns and get in front of the...August 7, 2018