The Difference Between a Credit Line and a Loan

If you need to get a hold of some money, you’re probably putting out feelers for information on getting some from your bank or other lending institution. Many people need help with buying a home, for example, and so they need mortgage loans. As you go along you may encounter offers for credit lines or loans, and be confused as to how they’re different. Read on to learn more about the differences between a credit line and a loan.

A credit line is very often an open-ended offer from a bank, credit union or other lending institution for money for you to access. If you get a credit line up to $100,000, for example, you can access that money and then pay it back, and then get access to the balance for as long as the credit line is open. So, if you’re approved for a $100,000 line of credit, and you borrow $25,000 of it to add an extra bedroom to your home, you now owe $25,000 — but can still borrow more, up to $100,000. Once you’ve borrowed that much you’re at your limit. If you pay off $20,000 of that $100,000, you’re now able to borrow another $20,000. A credit line is a lot like a credit card in that sense.

A loan, on the other hand, is usually a one-time transaction. If you qualify for a $100,000 loan, then the bank or other lending institution will give it to you in one lump sum, and you then pay it off. Once it’s paid off that’s it. The transaction is complete, and if you want more money then you have to apply for another loan.

To learn more about the difference between a credit line and a loan, banks, credit unions, mortgages and other lending institutions and transactions, be sure to consult with a banking or financial professional.