Should I Get a Loan or Line of Credit

October 15th, 2007

If you need money you may have a choice between a line of credit and a loan. You may just naturally assume that a loan is what you want and what you need, but actually a line of credit might be better suited for your situation. It is not too difficult to find out which one works for you. Here are details on the options as well as some questions that you should ask yourself before you get one.

Line of Credit

This will be your best option if you do not need money in a lump sum. This fits if the money you need will be more effective over a set period of time. For example, if you are getting some work done on your backyard you may not be paying in one full installment, the payments may be stretched out over time. Then you can get a line of credit and just get the money when you need it. Then you do not need to worry about hanging on to one lump of money for an undetermined time. You can then borrow what you need and you can borrow it when you need it.

Home Equity Loan

This is the option that will fit your needs if you need the money in a lump sum. An example of this is credit card debt. Take the money, and get it paid for. This is a lot more money to be in charge of so it can get quite intimidating, which is why you may not need this option if you are not going to use all the money at one time.

Questions to Ask Yourself

Does a line of credit cause me to use the money more carelessly?
Do I need a lump sum or will I need to pay in installments?
Do I need the money for the short term or the long term?
How much of a monthly payment can I undertake?

These are important to ask because the questions you ask yourself can really help you decide if you want this or not. Do not just pick one and go with it without questioning how this will help you.

Go Get That Money You Need

Both a line of credit and an equity loan are very helpful, but it really depends on your need. Do your research and ask yourself the tough questions because the last thing you want to have happen to you is find that you are stuck with a line of credit when you need a lump sum of money. It will have wasted your time and maybe cost you more money in the long term. So prevent yourself from having to deal with that situation. Make a smart decision and then go get that money!