Loans vs. Lines of Credit
Let’s break down two of the most common kinds: loans and lines of credit.
A loan is a lump sum of cash, a specific dollar amount advanced to the borrower based on their creditworthiness and need. Loans are granted for one-time uses, such as getting a mortgage or buying a car.
Other reasons people might take out loans include:
- Debt consolidation
- Higher education payments
- Home improvement
- Business needs
Paying back a loan includes paying back the principal amount as well as interest, and that interest rate can vary, depending on whether your loan is secured or unsecured.
A+ Tip: Use the Affinity Plus calculators to figure out what you could afford, and/or what you need to save to reach your goals.
Lines of Credit
A revolving line of credit (or credit line, as they are sometimes called) is established through your financial institution and set at a determined maximum amount. You can use this credit over and over as needed, either in full or only part of it, like a credit card.
For example: Your credit union advances you a $5,000 line of credit. This means you can use part or all of that $5,000, and whatever you have in the balance is available to use when you need it. And then whatever you pay off then becomes available in the balance again.
This allows for more flexibility when it comes to spending. And unlike loans, lines of credit can be used for anything. Repayment includes interest, but interest accumulation doesn’t start until the credit line is used.
Affinity Plus offers these lines of credit: