Line of Credit vs Personal Loans

    • There are many options available when you look at personal financing. This guide will explain the differences between personal loans, credit cards, and lines of credit.

      We will explore and outline the key differences between a line-of-credit and a loan to help determine what the best option is for you and your family. 

      How Much Can You Borrow on a Personal Loan

      The amount you can borrow on a personal loan will vary depending on how much you annually earn, how long you will need to pay it back, and your credit score. Most people can qualify to borrow around $30,000 (but some can borrow up to $100,000). If you think you’ll only need funds once in your lifetime, a loan may be the right option for you.

      How Much Can You Borrow on a Line of Credit (With &Solved)

      With &Solved, you can open a line of credit between $3,000-$30,000 depending on your financial situation. To apply, you must be an Australian citizen or permanent resident, currently have a job, and be at least 21 years old. We will ask you for your identification, your current employment, and your finances.

      Can You Pay Off a Loan Early?

      You may be charged a penalty fee if you repay the personal loan early. Banks and other lending officers want to earn interest based on your total loan and may add fees and charges if you repay early.

      In order to determine if your loan has repayment fees, look through the terms and conditions of the loan for a prepayment penalty. When you have the information you need, decide whether or not it is worth paying off early by comparing the fees to the amount of interest you would be paying otherwise.

      Typically a prepayment fee will be based on the percentage of the remaining balance of any personal loans,  but it could vary from contract to contract. If you don’t understand your specific deal, talk to your lender and about paying off your debt before the end of the loan term.

      Can you Repay a Line of Credit Early?

      With &Solved, your monthly repayment is flexible. According to our loan terms, if you have extra funds and want to repay early, you are free to do so without extra fees and charges.

      A personal line of credit is often a good choice for people (and businesses) who frequently may need access to extra funds. The fixed-rate interest fees only apply to the amount currently borrowed and not to the total available amount.

      Does a Personal Loan Hurt Your Credit?

      A personal loan may hurt your credit mildly, but it isn’t as damaging as credit cards that are close to (or meet) their limit. If you make sure that all payments are made on time, a personal loan will have little or no effect on your credit score as a whole. 

      You will often experience a temporary drop in your credit score at the end of repaying a loan. This is due to the loan becoming a “closed account.”

      Can You get a Loan without a Credit Check?

      With some lenders, you can get a personal loan without a credit check. Often these institutions will look at the last few months of your banking history or other factors when making their decision. You might be able to apply for an instant cash loan that are typically smaller loans that can be paid off fortnightly or monthly. Payday loans without a credit check are currently illegal in Australia.

      Always carefully research any organisation who is willing to lend your funds.  We recommend looking for a lender with both an AFSL and Australian credit licence before making your decision. You should also carefully go through the terms and conditions of the personal loan for anything that isn’t clear or seems to be in error.

      Personal Loans vs Credit Cards             

      A personal loan is given to the borrower in a single lump sum. The borrower is given a certain amount of time to repay the loan (generally between 1-7 years). The lender doesn’t loan any additional funds during the loan term. If the client wishes to borrow more money, they must apply for another loan.

      In addition to interest, the customer may have to pay an establishment fee, monthly charges, and possibly a prepayment penalty if the loan is paid off ahead of time. Interest will generally vary between 2.99%-36%. On average, an Australian with a personal loan will pay 10.30% interest.

      Credit cards differ from personal loans in that they are a revolving loan. You can make purchases as frequently as you like asl long as you don’t exceed your limit. You do have to make at least one minimum payment per month to keep the card active.

      Good credit cards will come with credit transfers and rewards (such as air miles or cash back). No interest is accrued if the amount owed is paid off every single month. Some cards will charge a maintenance fee annually. Interest from credit cards generally varies between 13.99%-22.99%. The Average Australian interest rate is 16.58%.

      Personal Loans vs Car Loans

      The major difference between personal loans and car loans is that car loans are created specifically for vehicles in mind, whereas you can take out a personal loan for anything. You can often fill out an application for a car loan when you go to purchase the vehicle, whereas you would need to be approved for the personal loan ahead of time.

      An unsecured personal loan will give the borrower the money that they need to purchase the car without having to provide collateral. While most lenders require collateral in many situations, it is uncommon to be needed when the money is intended toward a car.

      Unsecured loans generally have a higher interest rate than those that are secure. Additionally, you may not be guaranteed a fixed rate of interest, meaning you may owe a higher percentage a year or two into the loan. You may be charged an establishment fee when accepting the loan.

      Car loans are similar to mortgages in that the money lender is in control of the property until the last payment is made. A vehicle is secured by the car that you are purchasing, making it the collateral for your loan. If you neglect to make payments, the lender is likely to reclaim or seize your vehicle.

      As the lender has control over the vehicle, the loan is seen as secure, which generally reduces the interest. Another benefit to a car loan (over a personal loan for a vehicle) is that the interest is a fixed rate. You won’t have to worry about it going up before your last payment.

      Personal Loan vs Line of Credit

      There are many similarities between a personal loan and a line of credit. Both require an Australian credit licence, will check your credit score and bank records, and require you to fill out an application. You will often have the option of choosing between a secured or unsecured personal loan or line of credit.

      The main difference between a personal loan and a line of credit is how the borrower receives the money. Personal loans are given to the borrower in a large lump sum at the beginning of the loan. According to some loan terms, there is a minimum amount that can be borrowed as lenders would prefer to receive more interest over time rather than give out smaller loans yielding in fewer interest fees.

      A line of credit, on the other hand, is a revolving credit loan (similar to a credit card). The borrower is able to withdraw the amount they need (up to their credit limit) and repay it as they are able. The borrower is not charged interest on the credit limit, only on the amount actually borrowed.

      Another difference between the two loan types is that the borrower will need to fill out a new application if they end up needing additional funds in the future. Those who use a line of credit can borrow from their limit when they need to without having to reapply.

      You are unlikely to get a fixed rate with either the personal loan or the line of credit.  There are several factors that can adjust the rate of a personal loan such as the amount borrowed and the length of the loan. There is generally less variance with a line of credit as it is revolving.

      Comparison rates of interest between personal loans and lines of credit generally show that there is a higher interest for the personal line of credit. As you won’t have to borrow the full amount at any time, however, you may be charged less interest overall. You also have the added benefit of being allowed to repay the debt early.

      Does Opening a Line of Credit Hurt Your Credit Score?

      When you fill out an application for a line of credit, your score may temporarily be affected (by dropping a few points) when the creditor runs your credit.

      Once the line is open, your credit may be improved if you borrow a small percentage of the credit line and repay it in a timely fashion. Borrowing the full amount or a large percentage (and not making payments) may lower your credit score over time.

      Can you withdraw cash from a line of credit?

      You can withdraw cash from a line of credit. Two advantages that a line of credit has over a credit card is lower comparison rates and lower (or non-existent) fees when withdrawing cash.

      Can you pay bills with a line of credit?

      Paying bills is one of the more frequent uses of a line of credit. For individuals (or start-up businesses) that have varying cash flow from month to month, a line of credit comes in handy. They are able to withdraw the cash they need to cover their utilities, rent, phone, and any other monthly bills that add up.

      When business or work picks up again, they are able to repay the line of credit. When they need to use it again, they will not have to fill out another application as they would a personal loan.

      Fees and charges

      Fees and charges will vary from company to company. At &Solved we have two unhidden fees. They are as follows:

      • If you have drawn from your account, there is a monthly $10 maintenance fee. If your balance is at zero, there is no fee.
      • If you do not repay your minimum payment (which is 2.5% of your closing balance every month) on time, you will receive a late payment fee of $35. If you realise ahead of time that you will not be able to make your payment, don’t hesitate to contact us. We are happy to work with you to find another arrangement that works for both of us.

       

      &Solved Line of Credit

      &Solved has been serving Australian families and businesses since 1999. We specialise in giving our clients peace of mind with our cost-effective plans with application fees and no surprises. Contact us today to open your own line of credit.

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