If a person is looking for a loan quickly, they probably already know the principle of a personal loan. But do they also know the concept of line of credit? This form of loan, which is quite different in its implementation compared to traditional credit, may interest you. Explanations are below.
What is the difference between a line of credit and a personal loan?
To make a purchase of any size, people can use a personal loan from Blue Trust Loans if they do not have the necessary amount set aside. They can apply for a personal loan to use as they wish. There are personal loans offered with a variable rate, but in most cases, personal loans are offered with a fixed interest rate.
Borrowers are granted a clearly defined amount and they repay the amount on a monthly or semimonthly basis. The standard is that repayment occurs every month, with monthly payments that include a share of the borrowed capital and a share of interest due to the lender.
A line of credit
If a person needs money but that need is quite variable over time and is not only centered around a good or service, then a line of credit is one solution to consider. Once the application is accepted, a line of credit is kind of like cash that the borrower has access to all the time, and which they can make use of as they wish. Unlike a personal loan, people pay interest only on the amount they use the amount made available.
The borrower does not pay interest on the entire amount offered. However, as for a conventional credit, people must repay both the principal and an interest portion.
A line of credit or personal credit, which one to choose?
A line of credit is a revolving credit, which means the borrower can access all or part of the sum whenever they want. A real difference between the two options lies in the repayment, one of which is spread out over time but does not give the borrower the right to a new de facto loan. These totally different repayment options, between regular personal loan repayments and sometimes very variable payments for a line of credit, make the choice very difficult.