Difference between line of credit and loan
Although loans and credits are used indiscriminately as synonyms in banks and in the media, the truth is that they are different products with different characteristics, advantages and disadvantages.
“Lifetime” bank loans
They are used to finance large projects such as financing a car.
The entity gives us the full amount of money to pay for the draft project
We will pay for all the money borrowed from the moment they grant it to us
They have a fixed period of reimbursement previously agreed
The monthly installments are fixed and also previously agreed upon
- We know how much we will refund in total from the beginning
Online credit lines for individuals
They are used to have extra money for any purpose (higher expenses than normal, whims, months where spending increases …)
The entity puts at our disposal a maximum amount of money that we can access
According to our needs or projects we will be withdrawing a part of the loan money that we need
We will pay interest for the money we use, not for the total amount of money available
The reimbursement period will depend on the quantity arranged at each moment
The monthly fee will depend on the money arranged at each moment
- Depending on the term and amount that we have available the line of credit, the total to be paid will vary
While personal loans are a good alternative for large projects for which we need a large amount of money to use at once, lines of credit are a good alternative when the person needs to have a large amount of money available, but not all the time An example could be to finance a trip or a home renovation , where new renovations or contingencies may arise that require an increase in the budget.
Two ways to get a line of credit
Online credit lines have historically been a widely used alternative for financing companies and self-employed workers , since they adapted very well to changing financing needs at any time and without further formalities:
As a credit for consumption : these are accounts where we will have the available money with which we can direct expenses, pay directly, make transfers or any other action from the own account. The monthly installments that we have chosen at that moment will be charged directly each month in the current account that we have selected.
Like a credit card : it is a similar operation, only we will do it through the plastic of the bank card. Here you can learn more about the operation of credit cards.
The conditions of each type of line of credit may vary depending on the entity or product for which we choose. It is important to compare different offers before choosing one type or another.
Commissions of the lines of credit
Online credit lines are not exempt from the dreaded commissions, although they are different from those applied by personal loans . Generally, we should pay attention to the following:
Opening commission : many lines of credit have a commission that we will have to pay for the opening of the line of credit.
Commission for disposition of cash : if the account of the line of credit or of the credit card we need to have cash, the most common is that they charge us a commission for this operation that is around 3% of the disposed money
Annual fee: to renew the line of credit, especially if it is a credit card, sometimes we will have a maintenance fee that will be charged manually
Commission for transfer on account : it is also possible that if we make a transfer of money from the account of the line of credit to our account, they charge us a cost for it.
Commission for payment in installments : although it is not common, many entities charge a commission for starting to pay in installments. Simply by choosing the payment method in installments instead of the payment the following month.
We must bear in mind that each offer will apply the commissions according to their offers, so the cost of the commissions or if they have them or not will depend on each promotion
Advantages of online credit lines
These financial products are some of the most innovative in the market . Although there are already online credit lines for self-employed or small and medium-sized companies, the fact that many private equity entities have launched into this business allows us to achieve many advantages inherited from quick loans:
They are online products: you can contract without having to go to an office of the entity. In this way we gain in comfort and speed
They are impersonal , it means that we will not have to deal with a lender face to face. We can make the entire application through our computer, tablet or mobile phone, with a fully automated process.
We will only pay for the money we have . The rest of the capital of the online credit line that we have been granted will not generate interest.
If we do not use any money, they will not charge us anything . This happened with the old lines of credit, because they had a commission for non-provision as compensation for the possibility of accessing a certain amount of money.
It is a growing market, which is generating a great competition between the new products of these lenders. This makes everyone launch offers from which we can benefit as customers.
The process of processing and granting online credit lines is the simplest and fastest , being able to count on the money in a matter of minutes and with hardly any paperwork.
In the vast majority of entities we can amortize the money in advance without being charged a cancellation fee for it. In fact, this action usually reverts to an extension of the credit limit of the product.
They are for any purpose , by not requiring a receipt we can use them to finance a trip , a car or higher education, for example.
One of the main advices when resorting to personal minis loans is that we should not resort to them in a habitual way, because their cost and their short term makes them a risky financial product if we ask them frequently.
About this page
What is this page for? This website was created as a guide for our users in the area of credit lines for individuals. These products are truly innovative, so we see it necessary to explain their main features to the visitors of the page.
Source: the data on the products that we provide on this website have been checked on the official websites of the lenders, as well as on the website of the National Association of Financial Credit Establishments (ASNEF) .
Methodology: all the information that appears on this page has been obtained through online and telephone research, as well as mystery shopping and consultations with our experts in personal finance.
About Zorro: we are a comparator of financial products and home economics whose goal is to provide the user with a market perspective of any of the products he is interested in contracting. Likewise, we provide our visitors with tools to calculate costs and compare products.