The Difference Between a Line of Credit and Different Types of Loans

The Difference Between a Line of Credit and Different Types of Loans
October 19 08:21 2017 Print This Article

Many people don’t have substantial savings for emergencies that come along and some people simply have none at all. If you fall into this category chances are pretty good that you will need to borrow money for things like home or auto repairs and other unexpected expenses. Luckily, there are many different lines of credit and loan options available, covering you whether you have good credit or poor credit.

A Line of Credit

A home equity loan or credit cards are open-ended lines of credit that you can use for expenses and repairs. Both types have a credit limit and both let you use the money any way you choose. In order to obtain a home equity loan, you need to own a home and have equity in it. You also need to have a good credit score. You can borrow different amounts based on your income and equity in your home. Based on these factors, many times you can borrow an amount considerably higher than that of a credit card at a much lower interest rate. The drawback to this open-ended loan is that the processing time can take two to four weeks to get an approval and acquire the funds. Credit cards offered through numerous lenders allow even someone with fair to poor credit to obtain a small credit limit. This enables you to pay expenses while also working towards rebuilding your credit. Credit card approvals are generally pretty quick, within a few hours. Once you have the approval processing takes only a day or two and then it’s simply a matter of waiting for it to arrive in the mail.

Online Installment Loans

Companies like MaxLend.com have a variety of short-term installment loans. These loans have a fixed monthly payment that you can spread out over the course of up to a few years, allowing you to repay your debt in small amounts. Since they are not a traditional bank, the requirements are less stringent and the processing time is much faster, in most cases, you can receive your money within a day or two from the time of the approval. 

Personal Loans

Personal loans offered through a typical bank can take a few days or a week to go through the application process. The requirements include a credit score search, several months of your bank records and verification of employment. Since these type loans are unsecured, banks only approve those who meet all of the above requirements. The benefit of applying for this type of loan is that if you get an approval you can borrow more than the amounts typically offered with an online installment loan.

Payday Loans

Payday loans are the easiest to receive an approval on for anyone who has a steady job and a checking account but has poor credit. Unfortunately, the drawback of these loans is that the repayment is fast, in most cases within just a few weeks and the interest rate is very high, upwards of 600 to 800 percent. You should only use this type loan if you have no other option available. If you do decide to take out a Payday loan just make sure that you have the funds to cover it available in a week or so after acquiring the money. 

Deciding to Borrow

Whether you need to borrow a small amount or several thousand for a major repair, there are a variety of options at your disposal. If you have good credit and own a home you can take out a HELOC or a personal loan. If your credit is less than desirable for a typical bank, you can still acquire a small loan from an installment loan or a secured credit card. Just make sure that whichever one you choose that you only borrow what you need and that you have the ability to repay the loan on time.

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