Debt has become a natural part of society these days, whether it is a soft loan, long-term loan, mortgage or credit card loan. It is thus normal for most of us to find ourselves wondering what type of loan to take for a particular need. One common question is which type of loan to go for, between a personal loan and a line of credit.
But first, we have to understand what each loan type means. A personal loan is where an individual receives a specific amount of money in bulk as a loan and then you repay the money over a specified duration of time with interest. A credit line is where an individual can borrow small loans when they need to. The most common line of credit is a credit card.
Differences and advantages to each
One of the main differences between the two is that a credit line is like a soft loan where the lender gives the borrower a small loan to cover their immediate need when they do not have cash at hand. Personal loans can be large loan amounts that an individual may borrow when planning to make a large purchase.
Credit lines are more flexible and easy to acquire than personal loans. They are thus available every time you need them as opposed to personal loans which are not as easy to acquire and the process of securing one might take longer. This highlights one of the major advantages that credit lines have over personal loans.
On the other hand, a personal loan is more preferable where the borrower wants to borrow a lot of money, for example for a big investment project. It is a great option especially for someone who wants to run a personal business or to purchase a car.
Another major difference between the two is that you start making payments for a credit line when you use the money received. You start making payments for your personal loan as soon as the fixed repayment starts and that is when you receive the loan amount. Deciding which type of loan suits among the two will likely depend on your financial needs.