Differences between a line of credit and a personal loan
Although most consumers use both terminologies to refer to the same thing, the truth is that a line of credit is not the same as a personal loan. We tell you what their big differences are.
Flexible support in the event of unforeseen events
A line of credit is a financial product that guarantees the user a permanent amount of money, which is why it is often known as a permanent loan.
This amount is fixed (it has a preset limit) and can be spent little by little or at one time. As long as you return all the borrowed money, you will have that amount again.
The great advantage of a line of credit is that it is a very comfortable and flexible product , which you can use whenever you want without even having to use it. And if you do not use it, you do not pay interest (although you may have to face a maintenance commission), hence it is so attractive, since you can request it as financial support for any unforeseen or unexpected payment.
Lines of credit or permanent credits have been characterized by having higher interests than other products, however, more and more entities offer credits of this type , so the possibility of finding lines at a better price is expanded .
Of course, you have to remember that the repayment period in a line of credit begins the same day that you have spent the amount, that is, each day that passes, the interests increase, so it is convenient to make the return when before. The advantage is that the credit line is continually renewed . The same does not happen in personal loans that, once amortized, end.
In Credit Yes , for example, we have a line of credit of up to 2,000 available in 15 minutes . And we don't care where you spend the money or when you spend it, just that you enjoy the requested amount when you need it most.
Financial support for major investments
Personal loans work differently and their reason for being is different.
This type of financial product, which is also known as fast credit or consumer loan, provides the requestor with a fixed amount of money, at a certain time, which must be returned within a period stipulated in advance, neither before nor after.
Personal loans are designed to cover a specific and large need that the user cannot face at that specific moment, in fact, they handle higher amounts and long repayment terms. While a line of credit is designed to act as a cushion and solve recurring contingencies that the consumer will be able to face in a few days.
Another of the big differences was that, in the case of personal loans, the money was not available immediately, but after signing a contract with the chosen bank: however, we speak in the past tense because this disadvantage is changing, now that most technology lenders take less than 24 hours to provide you with this product. Even so, of course, it is not as immediate as having a line of credit .