The realities of life often catch up to us at the most inconvenient times. No matter how much you pinch, scrimp, and save, there may come a time when you need a little extra cash. When your rainy day fund runs dry, it’s important to have a backup plan so that you can take care of emergency expenses or splurge to take that trip you’ve always wanted to go on.
If you find yourself needing a little extra financial wiggle room, you have two options—personal loans and credit loans. These two types of loans have similar aims. Both personal loans and credit loans can be used for personal expenses. Unlike a car loan, student loan, or mortgage loan, personal loans, and credit loans do not have to have a specific spending purpose. This means you can use the money from personal loans and credit loans to renovate your house, pay bills, go on a vacation, or keep you fed until your next paycheck.
There is a difference between personal loans and credit loans though, and knowing that difference can help you determine which of these money borrowing methods is best for you.
Personal loans are unsecured loans you can use for any legal personal payments. These loans can be taken out through a credit union, a bank, or a professional lender. Most people have more success when they use a professional loan financing company for personal loans. The interest rate on personal loans is usually based on your credit score, but some professional lenders are set up so that they can offer you a loan without a credit score.
When you obtain a personal loan, you receive all of the money at once in a lump sum. You are then responsible to pay back all the money you borrowed plus interest over a set period of time. These payment installments can be set up in any way that works best for you.
Personal loans are best in a situation where you need to borrow a large amount of money all at once to make a big purchase or large financial commitment. Personal loans are also good to use for one-time expenses you won’t regularly incur.
Credit loans—or a line of credit—involve a set amount of credit given to a borrower. The individual using the credit loan is given access to a certain amount of money, but does not have to borrow all of that money at once, or at all. Credit loans are paid back on a set schedule but you only pay interest on the money you borrow from your pool of potential credit, not the entire line of credit.
Once you have been approved for a credit loan, that line of credit stays available to you. You do not have to reapply the next time you need credit. Individuals with credit loans can borrow a different amount of money each week or month, depending on the plan set in place for them by their lender. Individuals can get a credit loan from a professional loan lender, a bank or a credit union.
Credit loans can be lifesavers for people with fluctuating incomes. If your monthly pay is based on commission or odd jobs, you may have a hard time making ends meet at the end of the month or saving up for a fun holiday. A credit loan gives you the flexibility to borrow from month to month as needed.
Consider meeting with a lender to discuss your specific financial needs in person or over the phone. A lender may be able to further help you determine just which kind of personal loans or credit loans you need.