Should I Apply for a Line of Credit or a Lump Sum Loan

LUMP SUM VS. LINE OF CREDIT

Unsecured loans offer the choice of receiving your funds as a revolving line of credit or as a lump sum. You'll need to analyze your needs and goals in determining which is going to be better for your situation. If you are not sure, please contact us and we can help you.

Line of Credit
Since a line of credit has an adjustable rate associated with it, you are going to probably pay more for this type of financing. Adjustable rates typically fluctuate whereas lump sum interest rates are fixed.

The manner in which a line of credit operates is comparable to a credit card. Suppose you receive approval for a $5,000 loan with a term of three years. You are entitled to borrow any amount amount of the $5,000 at any point of the three years. As the funds are paid back, they are available for borrowing again. So, if you borrow $2,000 of the $5,000, there is still going to be an additional $3,000 at your disposal whenever you need it. In actuality, a $5,000 line of credit can equate to a much larger loan than a $5,000 lump sum. It is important to note that your total credit line is required to be paid back at the conclusion of your three year term.

Using a line of credit is a great choice if you are looking for finance on-going scenarios like paying for college or for making home improvements. You will receive a check book that you can use for writing needed amounts for expenses and coupons for making monthly payments.

Learn more about the competitive unsecured personal lines of credit we offer.

Lump Sum Loans
This type of financing, also known as closed-end loans, have fixed interest rates associated with them. The rates and terms you receive for a lump sum loan is going to be influenced by your credit rating. The stronger your credit is, the more money you will be able to get approved for, for a longer term.

The quicker you can pay your loan back, the less money you will pay in fees and interest for your loan. Supposed you borrow $5,000 at 13% for 48 months. You will end up paying about $115/month and $5,520 for the total loan. However, if you extend the loan to 60 months, you will end up paying $95/month and $5,800 for the total loan. Try our personal loan calculator to compute different loan amounts and payments.

Lump sum loans are typically deposited straight into your bank account. You will make monthly payments via a coupon book. These types of loans are best for financing one-offs like a wedding or vacation.

Pros and Cons of a Line of Credit - Determine if a line of credit is right for your needs.
Line of Credit Vs. Credit Cards
What is a Line of Credit?
Bankrate explains more about lump sums compared to lines of credit

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