
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 A date for the monthly repayment of the loan will also be provided and withdrawn from the borrowers checking account on the date mentioned.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
-
`
Prince Harry and Meghan Markle’s Shockingly High Cost of Living
Prince Harry and Meghan Markle are undoubtedly the most discussed members, er, former members of the royal family. A few years...
January 5, 2023 -
`
To Cope With The High Cost Of Hiring Lawyers, Some States Are Letting “Non-Lawyers” Offer Legal Advice
Hiring a lawyer or a personal attorney is expensive. Most American households lose cases by default because they can not make...
December 29, 2022 -
`
The Guide To Finding The Best DUI Lawyers
If you have committed the crime of drunk driving, then you should look for a good DUI lawyer. A DUI conviction...
December 19, 2022 -
`
Best Way to Prepare Yourself for Retirement
The days when you could take up a job with a company, work for 20 or 25 years, and retire with...
December 10, 2022 -
`
How Borrowers Can Use Credit Risks For Their Advantage?
When lending out money, there are hundreds of things – if not thousands – the lender thinks about. From cash flow...
December 8, 2022 -
`
Great Ways to Jumpstart Your Legal Career
Are you considering a legal career but don’t have any idea where to make a beginning? The industry for legal services...
December 5, 2022 -
`
Legal Advice for Landlords to Evict Tenants
Evicting tenants is a process which is fraught with legal pitfalls unless the landlord can do so by following the eviction...
November 30, 2022 -
`
Five Reasons why Your Retirement Plan Can Fail
Even the best-laid retirement plan can fail to trap both the individual and the practitioner because in most cases they are...
November 25, 2022 -
`
Career Experts Weigh In On The Best Ways To Make The Most Of A Work Conference
Whether you work in the corporate field or not, work conferences are common for every field. They are about giving people...
November 23, 2022
You must be logged in to post a comment Login