As an adult, it is essential to have sufficient financial literacy to help navigate the different necessary processes, such as purchasing a home or a car. That being said, you may have already heard about loan and credit line. If you have, then you must wonder what they are and what are their difference. In this article, we will be discussing what loan and credit line are and how you can make these processes easier for you.
What is Loan?
When people hear the word loan, they automatically correlate it to an installment loan. Installment loan refers to the money that lenders give to in a lump sum. Then, that money will eventually be repaid with interest in an agreed-upon schedule.
Most loans are amortized. This means that the amount of payment per schedule is equal. For example, you take out a loan for an amount of $50,000 with an interest of 5% to be paid monthly in 10 years. You will be paying $437.5 monthly for that loan.
They are several reasons why people take out loans. Usually, it is to purchase something that they couldn’t afford to pay in cash. For example, cars, equipment, and houses. Aside from that, these are the different types of loans:
- Secured
The characteristics of a secured loan are that they all require a collateral asset before a lender approves to finance. The most common type of secured loan is a mortgage loan. Many individuals commonly use it. Borrowers provide lenders a lien on the property title, which will be released when they have fulfilled all the payments. However, in an unfortunate event that the borrower failed the terms of the loan, lenders have the legal right to take the property and sell it to compensate the money owed.
- Unsecured
Contrary to secured loans, unsecured loans do not need any form of collateral. The most common example of this is credit cards and personal loans. However, an unsecured loan is usually short term and have a higher interest. The interest and loan limit depends on the lender.
- Demand
These are another type of short term loans. They have specific dates of repayments and have a floating interest rate. This rate varies on the prime lending rate or on what is defined in the contract. They are called “demand” loans because lending institutions can request payment at any time.
- Subsidized
A typical example of a subsidized loan is a student loan. The interest is reduced by a hidden subsidy or explicitly. For example, student loans in the United States are interest-free, given that the student is still enrolled in a university.
- Concessional
These types of loans happen between a first world nation and a developing nation to aide progress. It is also often called a “soft loan.” The terms granted are more relaxed compared to market loans.
What is a Credit Line?
A credit line is a popular way of borrowing money. It is a set amount of money that a borrower can use; then, when repaid will refresh again to the highest limit. A credit card can also be an example of this, but there are other types of lines of credit. Here are the types of line of credit:
- Home Equity Line of Credit
A home equity line of credit is also known as HELOC. The maximum borrow limit of this credit depends on the equity of your home. Similar to a credit card, you can borrow money with your credit limit, and once that is paid, it is then reverted to the highest limit.
Most HELOCs are used for home improvements where the value of the house can go up so that the money borrowed can be quickly paid back. It is also a good source of funds for emergency purposes. It is not necessary to use your HELOC, but if you have one and need money fast, then this how you can easily acquire funds.
- Business Line of Credit
The purpose of a business line of credit is to finance an endeavor without taking on a fixed loan. However, your business has to be profitable, as that will be the basis for the approval and your credit limit. Your business must have a substantial profit revenue and good credit score after a background check.
- Personal Line of Credit
The best example of a personal line of credit is your credit card. It allows you to access your unsecured funds. However, it does come with the risk of incurring massive interest depending on the bank that issued your card. Also, the options for the terms of payment for a credit card are often limited.
It is possible to have more than one line of credit. However, it does come with significant risks. This risk is mostly on incurring multiple interests, which will eventually stockpile monthly. In case you cannot repay the interest and the money borrowed, you may face serious legal charges.
Which is better: Loan or Credit Line?
As to which between loan and credit line is better, it depends on the situation. If you are planning to make a one-time big-time purchase or investment, a loan is more ideal. For example, if your purpose is for buying a car, house, or education, then going for a loan that has a flexible payment option is better. However, before you commit to any loan, you should read the fine prints of terms and conditions thoroughly. This will save you a lot of regrets in the future.
On the other hand, if you need emergency cash or you know that you will be able to pay the borrowed money immediately, then go for a line of credits. Once you have been approved, they are less of a hassle compared to loans. Also, you could borrow almost immediately once you have finished paying off the existing credit.
How to Make a Loan and Credit Line Process Easier?
Applying for a loan or credit line can be a complicated matter, but it is essential to achieve financial stability in the future. To lessen the burden, you can employ the help of loan agencies to guide you through its nitty-gritty process. One of the leading options for this service is Credit Star Funding. They have extensive knowledge in the industry and a vast network of lenders and banks. If you are an entrepreneur looking for funding or an ordinary individual looking for ways to get a loan to approve, then you should check out their services.
Another benefit that you would get by employing the services of Credit StartFunding is a protected credit score. All banks share a network of information. If you apply online for a line of credit or a credit card, other banks can send you history, which may affect your approval and credit limit. At Credit Star Funding, that is not an issue. They have a patent application that the banks do not know about. This application can get the client $10,000 credit from 6 different banks, which will make their history look better.
On the contrary, if you are someone who is looking to finance rather than borrow money, Credit Star Funding should still be the place for you to go. They provide well-informed advice to their clients with regard to financing. Moreover, they will also be the one who will conduct the necessary investigations on their credit and income to make the process smoother for you. They coach their clients what to expect and what to do in the application for funding.
The services of Credit Star finance not only end there. As the lending and borrowing process goes on, they will support their clients by educating them on the possible risks and assisting in gathering all the necessary documents. All these assistance and services are done by well trained and highly experienced professionals who are dedicated to making the loan and credit process smoother for all clients.
Aside from that, if you are an agent, you will be glad to know that Credit Star Finance is also a lucrative business opportunity. Their commission system allows agents to earn up to $2,500 daily, weekly, or monthly depending on their results.
Final Thought
Loans and credit lines can be complicated. However, you should be well informed about these topics to avoid regretful decisions. Hopefully, the difference between loans and credit lines are now clear to you. Remember, you should first asses your situation and identify which type of financing is best for you. Loans are best for lump-sum investments while credit lines are ideal for emergency fundings and short-term borrowing of money.
If you happen to still have further concerns about inquiries not addressed in this article, contact the Credit Star Finance. Rest assured that you will get a response from their customer service representative in no time.
