Choose Between Different Types of Loans and Lines of Credit
What's the Difference Between a Line of Credit and a Loan?
Lines of Credit
Flexibility is a key feature of a Line of Credit. You can access funds when you need them, as you need them, up to your available credit limit. That's why they're a great choice for unexpected expenses or ongoing projects.
- Only pay interest on the amount you use.
- Reuse your line as you repay it.
Predictability is a key feature of a Loan. When you know exactly how much you need to finance, you can borrow a specific amount of money for your project or purchase.
- Borrow a one–time lump sum*.
- Enjoy a fixed interest rate and predictable monthly payment.
Types of Loans or Lines of Credit
What is a Secured Loan?
A secured loan or line of credit uses something that you own as collateral –typically, your house. Mortgages and Home Equity Lines of Credit are common examples of secured credit products.
Additional points to consider:
- With a secured loan or line of credit, the lender can take possession of your collateral if you don't repay the loan as you have agreed.
- Because of the presence of collateral, secured loans generally have lower interest rates and higher borrowing limits, making them attractive if you need to borrow a larger amount.
- In many cases, when you use your home as the collateral, the interest you pay may be tax deductible - check with your tax advisor.
What is an Unsecured Loan?
An unsecured loan is tied to your commitment to pay your loan as promised in your credit agreement. Personal Loans and Credit Cards are common types of unsecured credit products. Additional points to consider:
- An unsecured loan avoids using your personal assets as collateral.
- Your creditworthiness is an important factor for getting approval for an unsecured loan.
- Unsecured loans generally have a higher interest rate than secured loans.
Questions to Ask
Now that you understand the basic differences between lines of credit and loans, here are a few questions to ask yourself:
* All loans subject to approval