There are many flexible loan options to choose from if you’re looking to pay off high interest debt, finance a home renovation, or have any other need to borrow money. In this blog, we’re going to look at the difference between two popular loan options: Personal Loans and Personal Lines of Credit.
What is a Personal Loan?
Money borrowed without collateral (vehicle, real estate, etc.)from a credit union, bank, or online lender that you pay back in fixed monthly payments, or installments, is a personal loan. Personal loans are used for a variety of reasons, like paying off higher interest debt, consolidating credit card bills, making home renovations, or simply to pay for a dream vacation. Personal loans have a fixed interest rate, which is a rate that does not change during the entire term of the loan, or part of the term of the loan, but it stays the same throughout a set period. It gives the borrower access to the funds in a lump sum. Each payment on the personal loan includes the principal as well as interest. Personal loans come with defined loan terms and a set repayment period. If you happen to pay it off before the repayment period, there are no prepayment penalties.
What is a Personal Line of Credit?
A Personal line of credit gives you the flexibility to borrow when you need it. For example, if you have a line of credit for up to $10,000, interest only accrues on the amount you’ve drawn, not on the total credit limit. Unlike a lump sum of money delivered at once with a personal loan, a personal line of credit allows you to receive the funds in allotments. The revolving credit limit makes it a more flexible borrowing option to access available credit when you need it. The interest rates on personal lines of credit are variable and can fluctuate with the Prime Rate. As long as the account remains in good standing, funds are available for the lifetime of the loan and any additional payments (above the accrued interest owed) are applied to the principal. Also, the amount will be available to borrow again, after the payment posts.
What can a Personal Line of Credit or Personal Loan be used for?
They can be used for many different purposes; paying for college, medical or veterinary expenses, financing a vacation, debt consolidation, and more. Both of these loans require no collateral so they are considered unsecured loans. A personal line of credit is a great option for any unforeseen, emergency expenses.
Which One, a Personal Loan or a Personal Line of Credit, is Right for me?
When choosing between a personal loan and a personal line of credit, it’s important to figure out your level of need and choose the one that best addresses your financial circumstances. Each have their own benefits and you’ll want to pick the one that best suits your circumstances. A personal line of credit is generally a better option if you’re unsure how much money you will need or if you want to borrow on a recurring basis. Personal loans are more appealing to those who want to borrow a set amount of money at a fixed rate, for a defined period of time.
Carolinas Telco Federal Credit Union (CTFCU) has been serving members across the Carolinas since 1934. We are proud to offer many flexible loan options such as a Personal Loan or Personal Line of Credit. Contact a CTFCU representative today to discuss what loan options are available to you and right for your goals.