Personal loans and credit lines are both types of revolving credit that you can use again and again when you need money. But they have different restrictions, terms, and cost implications. Each one serves a different purpose and solving for a specific financial situation. Read on to know more about personal loans vs credit lines and choose the right one for your financial needs.
What is a personal loan?
Personal loans are unsecured loans where an individual borrows money from a lender and repays the amount in installments over a specified period of time. In general, personal loans come with low interest rates, fixed repayment terms, and flexible interest-repayment options. Personal loans can be used for a variety of purposes, such as buying a car, paying off a medical bill, or buying a home.
What is a credit line?
Credit lines are revolving accounts where a lender grants you a line of credit that you can borrow against any time. Credit lines have no specific due date, so you don’t have to pay them back. However, they typically have a low credit limit, so you should be careful not to exceed that amount. Credit lines are often associated with credit cards, though they can also be used with other types of revolving credit, such as overdraft protection, home equity lines of credit, and credit-builder loans.
Which one to choose?
Personal loans are unsecured loans that you can use to pay off an emergency expense. They have low credit requirements and are easy to qualify for, but they often have high interest rates and high monthly payments. Credit lines are revolving accounts where you can borrow up to a certain amount. They are easier to get than unsecured loans and you don’t need to repay them in installments.
How to get a personal loan?
When you apply for a personal loan, you will get offers from various lenders. Choose a lender based on the terms, interest rate, and repayment plan. You can also consider lenders that offer flexible payment options, like low down payments and fixed monthly installments. Some lenders, like Lendify, even offer loan-to-value (LTV) options. Online lenders usually offer quick application and approval processes. You can also walk-in to a local lender for a personal loan.
How to get a credit line?
A credit card is one of the most common credit lines. Before you get a credit line, though, make sure you understand the terms and conditions associated with it. Credit card companies vary in their approval process and terms, so you may have to shop around before settling on one. Credit cards are easy to get, but they come with a lot of risks. If you don’t pay your credit card bills on time, you might get slapped with high interest rates and fees.
An alternative to this is to try out Gauss. The credit line is secure and cheaper. Plus, there's absolutely no paperwork involved.
Pros and cons of personal loans
Pros Some people prefer to take out a personal loan to pay for an emergency. Personal loans are unsecured, so if you don’t pay them back, there’s nothing a lender can do to collect the money. Cons Personal loans usually come with high interest rates and long repayment terms. The longer you take to pay off the loan, the more you pay in interest. This might not be an issue if you are using a personal loan to pay for an emergency and can quickly repay the loan.
Pros and cons of credit lines
Pros Credit lines are revolving accounts where you can borrow up to a certain amount at any time without paying any upfront fees. They are often associated with credit cards, but they can be used with other types of revolving credit. Cons Credit cards come with high interest rates and fees. Credit cards are easy to get, but they also come with a lot of risks. If you don’t pay your credit card bills on time, you might get slapped with high interest rates and fees.
The bottom line
Personal loans and credit lines are both types of revolving credit that you can use again and again when you need money. But they have different restrictions, terms, and cost implications. Each one serves a different purpose and solving for a specific financial situation. When choosing between a personal loan and credit line, think about your requirements, financial situation, and needs.