Why Apply For An Installment Loan Rather Than A Line Of Credit?
While both personal installment loans and lines of credit are effective ways to borrow money, these loans have different advantages and disadvantages. There are times when an installment loan is a better option. When should you consider borrowing money this way?
You Want to Borrow a Fixed Amount
While a line of credit has a maximum loan amount, this doesn't cap your overall borrowing. You can continue to borrow whenever you have credit on your account.
So, if you have a line of credit of $5,000 and take out $2,500, then your remaining credit is $2,500. However, if you repay this amount and its interest, then your credit line resets. You can borrow up to $5,000 again.
While this flexibility can be useful, you might not need or want it. If you want to borrow a fixed sum, then a personal installment loan might suit you better. Here, you would take out a loan for $5,000 and make regular repayments until you have paid down the loan and its interest.
You might prefer this option if you only need to borrow a set amount of money. It prevents you from over-borrowing. You get the finance you need without being tempted to continue borrowing in the future.
You Want Control Over Interest Charges
If you use a line of credit over and over again, then you're likely to pay more money in interest payments. These loans typically charge higher interest rates. Plus, if you use them continuously, then your borrowing will cost you even more.
Personal loans are typically cheaper. You pay back a fixed amount of interest over the term of the loan, and you're more likely to get lower interest rates. You know exactly how much your lending will cost.
You Want a Borrowing End Date
If you have a line of credit, then you might not have an end date for your borrowing. Your lender might let you use your credit indefinitely; you can borrow against it whenever you have clear credit in your account.
Some people prefer to keep their loans to fixed terms. They want to borrow money, repay it, and then close down their loans.
For example, if you need to borrow money to pay off other debts at a lower interest rate, then you won't necessarily want access to future loans that will keep you in debt. An installment loan helps you control your finances and borrow more effectively over a set period of time.
To find out more, ask lenders about their installment loans.