Personal Loans vs. Personal Lines of Credit: What's the difference?
Personal loans are occasionally referred to as signature loans, while lines of credit operate more like credit card accounts. Despite the confusion among modern borrowers, these two financial products have significant differences in terms of their features and everyday usage.
A personal loan is an unsecured debt that you can obtain from a bank, credit union, or online lender. It involves borrowing a sum of money that you must repay with interest within a specified timeframe. Below are the main features of personal loans:
Unsecured: In contrast to auto loans or mortgages, personal loans do not necessitate collateral. Therefore, you are not required to use an asset such as a car or home as a guarantee for the loan.
Fixed rate and duration: Personal loans feature a fixed interest rate and a set repayment period, usually ranging from one to seven years. This results in consistent monthly payments throughout the loan term.
Single disbursement: Upon approval, you receive the full loan amount in one single payment.
Versatile use: Personal loans provide flexibility in how you can utilize the funds. Typical purposes include debt consolidation, home renovations, unforeseen expenses, or significant purchases.
A line of credit (LOC) is a versatile borrowing solution provided by banks and other financial institutions. Similar to a credit card, you are granted a specific amount of money, known as a credit limit, which you can access. However, unlike a credit card where you receive the full amount immediately, with an LOC, you can withdraw funds as required, up to your set limit.
Here's an overview of how lines of credit operate:
Approval: You apply for a line of credit like applying for a loan. The lender evaluates your
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