What is the difference between Loans and Lines of Credit?

The main difference between loans and lines of credit is that a loan has a fixed payment and a line of credit payment is a percentage of the balance.

Loans
A loan is check payable to you/your business in which you will have to deposit the whole thing to have access to the funds. Loans have a fixed interest rate and your payment will be the same exact amount every month for the life of the loan.

Pros: Fixed rate, same payment every month, rate will never go up
Cons: Can not reuse, higher rate in most cases, have to use the whole amount at once, will have to pay interest on what you don’t need right now, smaller amounts
Clients who ask for a loan are usually looking for debt consolidation.
Lines of Credit
A line of credit comes in the form of a book of checks and can be used as needed. Lines of credit have an adjustable rate and your payment will be a percentage of your balance.

Pros: Lower rates, can reuse the money that you pay back, can get increased over time,
Rates might decrease, only pay interest on what you use, higher amounts.
Cons: Rates might increase
Clients who ask for a line of credit are usually any type of business.

Posted in: Frequently Asked Questions