Anyone may at some point need an injection of money to dispose of quickly. For the purchase of a car, a reform, because an unforeseen event has happened… Whatever the scenario, the most common is to go to a bank to consult the different types of financing available that best suit the needs of each case.
Banks usually have loans and lines of credit that, as much as they seem similar, they present several differences that it is convenient to know. Only in this way can you choose the most suitable option for each situation. The main one, as BBVA explains, is the way in which the bank provides us with the amount of money: In a loan we ask for all the amount we need and we have access to it from the first moment, while a line of credit can be modulated, extended and requested as needed.
For example, taking into account this difference, a loan is very comfortable to deal with an expense in a timely manner, while a line of credit is much more flexible and suitable for projects with a longer duration.
Interest and amortization
This main difference also influences interests. In a loan, these are paid according to the entire total of the capital that has been accessed while in the credit only those of the money used are paid and not all the money made available, so we may end up paying more interest on the loan. A line of credit, for example, is a credit card.
By last, repayment terms (which also affect interests) are different. Loans are usually granted with a term of years, so they usually have higher interest rates. Likewise, these are returned through the payment of monthly installments while the credit is renewed annually and is returned according to what was spent.
At BBVA they explain that The credit It serves as a punctual support to face expenses that we do not reach at a certain time and, on the other hand, the loans they are a way to deal with important purchases or fixed payments.