How Installment Loan and Line of Credit Payments Differ

There are many aspects to think about when considering a loan such as, is a Line of Credit or an Installment Loan more beneficial for my situation right now? Another question to ask yourself could be, how much money do I need right now? A Line of Credit allows you to borrow what you need when you need it up to your approved credit line.

What Is an Installment Loan?

An Installment Loan is a loan where the money is borrowed all at once. With an Installment Loan, the borrower typically has fixed monthly payments that stay the same amount and are due on roughly the same date every time. Once the loan is paid back in full, the account is closed.

What Is a Line of Credit?

A Line of Credit is an open-ended, flexible loan. This means there’s no set maturity date, and the line stays open as long as you need it. With a Line of Credit, the borrower’s payments are based on the amount drawn on the line. Therefore, the amounts due could be different every time if you are actively drawing on your line. The credit line can be borrowed from, paid back, and borrowed from again.

What Are Fixed Payments?

Fixed payments mean your loan payment amount stays consistently the same throughout the life of the loan. This financial regularity could make budgeting easier and more predictable since you’ll always be in the know of the exact amount due and the date it’s due.

What Are Variable Payments?

Variable payments mean there can be some variation in the amount owed on the loan, like if you draw on your Line of Credit. Borrowers may find a Line of Credit and its payment style helpful because they can just borrow what they need at the time and repay but also have continual access to their available credit.

Choose What Works for You

We encourage you to review your budget and discuss your options with your lender to make sure the payment structure aligns with your income, expenses, and comfort level. Understanding these loan options and their payment methods could help you make a confident decision that helps you stay on course financially.