Loan VS Line of Credit: What is the difference?

Hannah PattenUncategorized

Both Loans and Lines of Credit are two ways to borrow money from lenders for both businesses and individuals. For both, lines of credit usually depend on their intended purpose, a borrower’s credit rating, and financial history, along with their relationship with the lender.

Loans have what is called a non-revolving credit limit, which means the borrower only has access to the amount loaned once, whereas they subsequently make principal and interest payments until that said debt is paid off.

On the other hand, a line of credit works differently. Just like with a credit card the borrower receives a credit limit and makes regular payments composed of both a principal and interest portion to pay it off. But, unlike a loan, the borrower has continuous access to the funds and can repeatedly access them while it is active.