Want to take loan which one –Personal or New line of credit

No matter at what position you are, the time of year, holidays or not, the need for additional money may arise.

There are several ways to get extra money but the two of the most common ways include opening a new line of credit and taking out a personal loan from a bank.

Before understanding which is better between a personal loan and new line of credit, it is important to define the two terms as they are closely related. A line of credit is where you have an agreement with a company to borrow a specific amount of unsecured credit for a specific period of time. This amount of money is available for use at any time as long terms of the agreement are met.

Personal loans are money given by the bank on credit. There is no security given. The amount that is given to you is based on your credit rating and they are usually paid off in a short period of time (two to three years). You can use personal loans for anything that you need it for such as debt consolidation, vacations, medical bills etc. Personal loans have fixed rates and monthly payments until they are paid off.

Let’s see what is the advantage of one loan over the other?

A personal loan provides the total sum of money up front, which has fixed interest rate attached to it. You will be expected to make a payment each month until the loan has been completely repaid. The time period of the repayment of the loan is fixed depending on the length that you and your lender agree upon. The interest rates attached to personal loans are generally much higher than a line of credit. This means that you will pay more interest overall.

Opening a new line of credit has many differences. First and foremost, a new line of credit will give you money as you need it. You get flexibility in spending while providing money in emergency situations. In this the interest rate associated with new credit is adjustable. You have to pay interest on the amount of money you have used. The interest rate keeps varying with prime rates. So it might go up a half a point or so and then drop again. This means that a payment may be a little bit higher one month and then lower the next.

Let’s see the disadvantages related to personal loan.

First of all, when you take personal loan you get money once. This means if someone requires additional money, he or she will have to apply for another loan from a bank or credit union.

Secondly, in personal loan there is no option for tax deductible whereas in many cases a line of credit can be.

New credits do have disadvantages as well.

Interest rates are adjustable, there are no fixed minimum payment and can vary even month to month. The discrepancy of knowing what is owed can be a problem if living on a tight budget.

Now you can decide from these two which one you want to take depending upon your financial needs and financial situation.