Loans vs. Lines of Credit

Published on August 3rd, 2015

When looking to borrow money, there is a variety of options. Two of the main ones are loans and lines of credit. Each of these methods of borrowing money work differently and are made for people in different situations. You should learn about the differences between the two before you decide which is the better choice for you. Below is a description of the main differences between loans and lines of credit and how they work.


Lines of Credit

Essentially, when a line of credit is extended to you, it gives you the opportunity to borrow up to a certain limit from the lender. You can borrow any amount up to this limit at any time, and pay interest only on the amount used. Sometimes, a line of credit will have a minimum monthly payment that must be made, but not always. They can be secured, whereby you offer up some sort of collateral like your home or house, or unsecured. Often, lines of credit have lower interest rates than one-time loans.



A loan, on the other hand, is a one-time lump sum of money that is given after the borrower has been approved. You get the loan amount in full, and often start accruing interest as soon as the loan is extended. Usually, loans require a specific purpose. For example, mortgages are loans used for buying real estate, and student loans are meant to cover educational costs. Loans come in all different types with a range of interest rates and term lengths. To learn more about different types of loans, visit


Although they are similar, it’s important to see the key differences in these methods of borrowing money so that you know which one is best suited for your needs. Always do your research before borrowing money from anybody, and above all else, make sure that you can pay it back!

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