Installment Loans vs Line of Credit
When you need money, it’s always a good idea to research the options you have, to make the best decision for your situation. If you don’t have family or friends who can help you out, there are plenty of local lenders who can get you the cash you need, quickly. Depending on your needs, certain types of loans or lines of credit could be useful, but there are some major differences between these types of options.
Managing your financial life is easy, thanks to the plethora of choices out there. If you need a larger sum of money, and also need extended time to pay it back, both installment-style loans and personal lines of credit could be helpful for you. Let’s explore some facts about these two options, and what makes them different:
For one-time larger expenses, installment loans offer lump sums of cash, with set repayment schedules. These can be great for when you’re up against a significant emergency expense, like medical bills, car repairs, or anything else that has a set amount that you need to pay. Installment loans can provide you with the money you need to settle these urgent debts, and give you months, or even years, to pay it all back.
Your options and interest rates for an installment loan are based on a credit check, and sometimes income verification. Some lenders offer both secured and unsecured installment loans, giving the potential to put down collateral for a lower interest rate. Plus, repaying your installment loan is simple, with set payment amounts each month.
Line of Credit
If you have expenses that may be significant, and may continue for a longer period of time, a line of credit may be the better option. This opens up a revolving amount of credit (credit limit set by your lender) that you can draw from for a while, and allow you to pay back variable amounts each month, depending on your spending. Personal lines of credit can be useful for things that don’t necessarily have a set budget, like home remodeling projects or wedding planning.
Like an installment loan, obtaining a line of credit is dependent on your credit worthiness, and you’ll be subject to an interest rate based on your score. Credit is sometimes harder to get than a loan, but offers greater flexibility over time. Instead of a lump sum of money up front, like you’d get with a loan, a credit line simply opens up a certain amount of potential funds that you can choose to use when you need them.
Both installment loans and personal lines of credit are great financial tools, but operate quite differently. For one-time emergency expenses, like car repairs, a loan may make more sense. But for an ongoing project, a credit line may be the better choice. Your local lender can answer your questions, and help you choose which is best for your unique situation.