• Homepage
  • >
  • Loans
  • >
  • What is the Distinction between a Loan and a Line of Credit?

What is the Distinction between a Loan and a Line of Credit?

  • by Aiden Alfie
  • 8 Days ago
  • Comments Off

Banks are meant to provide financing solutions to the borrowers and present them with options provided like the loans or line of credit. This article is focused on the distinction between the two. Let’s read on to know more.

For the borrower or the customer, the most important distinction is that the Installment Loans | Online Financial Help | SlickCashLoan gives all access to the requested money all at once when the loan has been granted, along with a credit facility money that can also be requested when there is a call for the rise of liquidity. In simple terms, when you get a loan, it is much similar to opening up your piggy bank and noticing that you have all the money that you require at the moment and in a different way with the credit, you can withdraw cash gradually, only when required and without needing to use all the capital or money in hand.

The manner the customer or the borrower is provided access to the money is also the determining factor on how much interest is payable. The distinction between a loan and a line of credit is that in the former, interest is paid for all the capital that has been lent. Whereas, with a credit facility, interest is only paid on the amount of money that has been used, not on the total sum of the money that the bank has lent to you.

But it is quite possible to the unused balance fee. It means that a fee will be charged on the money or balance that you have not used. Additionally, as for the amortization, there are also distinctions between the loans as well as the credits. The loans are sometimes of the long term range, so the interests are also higher.

Another distinction between the two is the way the customer pays back the money received. With a loan, once all of the owed money has been repaid through the monthly installments, the operation is deemed closed with no possibility of borrowing more money as long as a new loan has been in contract. The manner in which the credit facility works is quite distinctive: usually, it is renewed every year so that the customer can continue to use the line of credit whenever required. For instance, the one way to use the line of credit facility is to apply for a credit card.

  • facebook
  • googleplus
  • twitter
  • linkedin
  • linkedin
Previous «