Budgeting

Traditional instalment Loan vs Line of Credit

When shopping for a loan, there are a lot of things to consider – fees, interest, term and type of loan.  Most people know about fees, interest and term but most don’t realise that there are types of loans or credit available beyond secured and unsecured. Traditionally, Australian borrow through two different types of loans – instalment loans and becoming more popular, the newer way to borrow, a line of credit.  

Traditional instalment loans might include mortgages, student loans, auto loans, or personal loans; these are a one-time, lump-sum amount that tend to be paid down through periodic, consistent instalments. Instalment loans are great for a one-off purchases and once repaid there will be no need for the available credit. 

 A line of credit is a flexible, revolving account that lets borrowers draw and spend money up to their approved limit, repay this money (usually with interest and possibly fees) and then spend it again. Lines of credit are a more proactive form of credit, available at your convenience. A line of credit while it can be used for one off purchases, it also gives the security of having the funds ready for any future purchases or unexpected bills.  

In general, loans are better for large, one-time investments or purchases. This could be the purchase of a new home or car or paying for a college education. Lines of credit, on the other hand, are better way to borrow for ongoing, small or unanticipated expenses or to even out income and cash flow. Where traditional instalment loans are very rigid, lines of credit are more flexible and can save you time by not having to apply each time you wish to take cash. At Credit24, we want you to have more control of your finances, so whether it’s making extra repayments which saves you on interest as you only pay back what you use.  

Here’s a few questions to think about when deciding which type of loan is right for you. Will you need finance again in the future? Do you want the option to pay out quicker without being penalised? What level of flexibility do you want and are there fees and charges? 

Still unsure – talk to our friendly team about the pro’s and con’s of traditional personal loans versus the new way to borrow – a line of credit.