When applying for credit, we always look for the best possible option. It’s wise to learn more about the types of credit available prior to applying for one. This way you’ll be better equipped to select the product that’s right for you.
Both personal loans and a personal line of credit can help you in situations where you need to borrow money. However, you have to know how they differ to make the right choice.
What is a personal loan?
A personal loan is a fixed sum you receive for your personal needs. Unlike other loans (home, auto, etc.), a personal one can be spent on various things (even for paying off a few other debts). It is usually unsecured and so it carries a higher interest rate. The funds for a personal loan are provided at once and you will have to start repaying it immediately. Personal loans usually have a fixed term for repayment and you are expected to make monthly payments until it is fully paid off.
What is a personal line of credit?
A personal line of credit is somewhat similar to a credit card. You receive a specified amount of credit that may be used in full all at once or partially anytime and anywhere up to your limit. Your repayment process begins the minute you tap into credit line. You only pay for what you take out vs making payments on the whole line. If you’ve maxed out your limit, you have to repay a portion of it to free up credit for future use.
Which one to choose?
For known expenses where you know how much and you need and how long you need it for, it’s best to apply for a personal loan. Knowing your monthly expenses is one of the prerequisites of a sound financial strategy for managing your personal finances. I personally prefer a loan for a known expense, because it prevents me from over applying for credit and purchasing unnecessary items which I might not necessarily have the budget for.
If you are not sure how much your purchase or project will cost, a line of credit could be the best option for you. It’s more flexible than a personal loan and grants you a certain amount of money that can be used and repaid at any time. This can be a great tool if you have a long drawn out project and will need access to cash sporadically.
Can I improve my credit score with a personal loan?
If you don’t have an established credit or have hit a rough patch with your finances, a personal could help you rebuild that credit score. The lenders report to the credit bureaus which could help. But, we strongly advise against getting a loan to rebuild your credit. The best choice is to pay-down your existing debt and develop a sustainable financial strategy for budgeting yourself and your family.
How can I apply for a personal loan?
It’s simple. Click right here
and you’ll be directed to the personal loan application where you can apply for a personal loan in 3 minutes.