Loan of Credit vs. Line of Credit

Loan of Credit and Line of Credit: The Better Option in Supplying Your Financial Demands

 

Money, being considered the vehicle in providing all our basic needs, has predominantly made its mark as the most in-demand human invention as of this time. Its prevalence in the modern society created a persistent impact not only to the world of trade and industry but also, to our simple standard of living as it dominates almost every aspect of life on earth. Its increasing demand has directed too many approaches to make its presence available to all mankind. Banks, for example, offer services like loans of credit and lines of credit just to supply mans great need for money. But which among these two services provide us better option in supplying our financial needs?

Loan of credit is any set amount borrowed from a bank through the provision of collateral. It may be reimbursed through fixed monthly installments over a certain period of time and is alleged with some interests. Basically, it is the best option once you need a certain amount all at once.

Line of credit, on the other hand, is an amount borrowed from a bank and limited by a collateral, which could be taken at any amount at any time as long as it corresponds to the given limitation of the collateral. It could be sufficed through a minimum monthly payment though paying it more than what is required could be possible.

Though both appear to be the same in offering low interest rates and tax benefits, still they differ in amount flexibility. Line of credit offers better convenience and flexibility because one is able to take any amount from the bank as long as it does not exceed the limitations imposed by the collateral. It also offers the advantage of paying one’s debts on the minimum amount. On the contrary, loan of credit is the best option when the amount needed to be borrowed is for single purchase e.g., for a home improvement or to start a business. Unlike the line of credit, it is usually paid through fixed monthly installments.

Both are actually helpful especially when there is a great need of money. But their differences may guide us as to what method wold be the best to correspond to or financial needs. In the end, it is us who will decide.

In brief:

  • Loan of credit is any set amount borrowed from a bank through the provision of collateral which is paid through fixed monthly installments.
  • Line of credit is any amount borrowed from a bank, and limited by a collateral which could be taken at any time in any amount as long as it not exceeds the limitations of the collateral and is payable through a minimum payment.