What to choose – Line of credit or Loan?


To enable purchasing power for the individuals and to make growth possible for the businesses, credit should be accessible at nominal rates of interest. With proper use of credit, the trade prospers which is highly beneficial to the economy in general. There are various offers of loans to support the people and the businesses. Since the borrowers pay interest for the loan amount obtained, the lending business thrives. The basic concept being the same, there are various types of loans categorized according to the rates of interest and terms and conditions. The article intends to deal with the ‘loan’ and ‘line of credit’ which are two of the many types of credit offers.

How do the offers of loan and line of credit differ?

Both the loans are offered by the banks and other financial institutions. When you open a line of credit with a bank or other lending personal loans no credit check institution, you can borrow funds to a certain limit whenever you are in need of financial support. You can pay the interest for the amount borrowed. You are allowed to borrow without any restriction as long as you do not cross the specified limit. Once you repay the amount whether the entire amount you borrowed or a part of the borrowed amount, you can borrow again up to the limit.

The payment plan is highly convenient. The offer can either be secured or unsecured one as per the loan amount. This is more or less like credit card loans. Business line of credit, personal loan and overdraft are some of the examples of line of credit. Due to the convenient mode of borrowing and flexible repayment options, the offer is much preferred by many consumers. Since you can borrow whenever you need, you can always restrict your requirements to minimize the amount of interest that you have to pay for the loan availed. You can always borrow when you are short of funds.

Loan is granted by the banks and other financial companies to the borrower for a fixed or adjustable rate of interest and the entire amount is accessed by the borrower as the loan application is approved. The repayment schedule is specified at the time of loan agreement and the borrower has to make the repayments towards the principal amount and the interest as scheduled. The loan may be secured or unsecured. If you opt for secured loan, you are to submit collateral so that the interest rates are lower. There is no risk for the lender in the offer as the loan amount can be recovered by disposing the asset set for securing the loan.

If your choice is unsecured loan, you are not supposed to present any security for the loan. However, there is the risk for the lender in the offer. The risk is minimized by charging overwhelming interest rate. If you are in need of urgent funds and if the need is for a short term, you can consider line of credit. If you are in need of financial assistance for a longer term, you can apply for loans either secured or unsecured. There are various offers of loans for specific purposes and you have to understand each of them to make your decision.