When money’s tight, an unexpected emergency expense has a lot of power over your finances. It can topple your budget and leave you in the lurch.
You can hope that you’ll get lucky and avoid a mishap, but it’s a pretty sure bet you’ll face an unexpected expense sooner or later.
That’s just the way life is. Your car breaks down, your kids get sick, and bills pile up.
There are only so many tips for juggling your bills you can follow. Eventually, you may need to borrow money, and when you do, check out this guide. It will help you choose between a personal loan vs. line of credit.
What is a Personal Loan?
A personal loan is money you borrow from a financial institution. Typically, everything about this financing option is fixed — you receive a fixed amount of money, due back by a fixed amount of time, and set at a fixed rate.
All this means is you’ll receive a lump sum of money that starts accruing interest once you receive it. Your terms will specify when and how you’ll pay it back — either all at once or over several installments.
Generally, you may get a secured or unsecured loan. Here, secured means your contract is backed by collateral or a valuable possession you own.
If it’s secured, you may put up a house, a car, or jewelry against your loan. This gives your financial institution the right to claim these belongings if you can’t repay it by the date specified.
If it’s unsecured, you won’t have to put up collateral to guarantee your account, and you may see a change in rates and terms change as a result.
What is a Personal Line of Credit?
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A personal line of credit is an open-ended loan, which allows you to withdraw funds on a revolving basis. All this means is you won’t have to request more funds once you pay back what you use as you would a loan.
Instead, you’ll receive a limit that sets how much you’re allowed to borrow at any time. You may use it all at once for one big expense or over several months covering multiple expenses.
You also have some choice in how you pay for it. You have the option of paying it off entirely or paying a minimum payment. This minimum is a small flat fee or percentage of your balance.
A financial institution like CreditFresh recommends paying as much of this balance as possible when you have the cash. It may help reduce what you pay in interest and free up more of your available limit. Check out CreditFresh.com to learn more.
Once you pay back what you’ve used, you’ll be able to withdraw up to your personal line of credit limit again.
Like a loan, you may also get a secured and unsecured line of credit.
The Final Answer?
It’s up to you! This may be frustrating for those of you looking for a straight answer, but no one can decide whether a financial product fits your needs except for you.
Only you understand what goes on in your budget. To take someone else’s advice without checking with your gut could get you into hot water.
There’s no harm in asking for help. But draw on what you learned here today to help you make the right decision.