Line of Credit vs Installment Loan

Line of Credit vs Installment Loan Laptop

We could all use some extra cash to help us out – whether it’s for a last minute purchase, an emergency repair or any other unexpected expense. The important thing for anyone considering a Line of Credit or Installment Loan is to know the differences between them. Knowing how these products work will help inform your decision of which product is right for you.


A Line of Credit is an ongoing, open-ended extension of credit. If you are approved for a Line of Credit, you will be assigned a Credit Limit, which is the maximum amount of money that you are able to borrow under that product. You can use this amount in a way that is appropriate for your needs. This means that upon opening your account, you can withdraw $0, the full amount of your Credit Limit, or any dollar amount in between. The amount of your required minimum payments will normally depend on the amount that you have withdrawn at that time. A Line of Credit would be a reasonable choice for someone who plans to borrow funds more than once or may have a reoccurring need for funds over a period of time.

In contrast to this, if you are approved for an Installment Loan, the full amount of the loan is given to you by the lender right away and repayable in fixed, scheduled installments. The full amount of the loan is generally due in full before you are able to reapply for a new loan. An Installment Loan is more practical for a one-time borrowing event like a medical emergency or a car repair.


You can think of an Installment Loan as a conventional closed-end loan in the sense that it has a fixed repayment schedule. This means that the principal amount of the credit that was extended to you, plus any applicable fees and interest, are repayable on a fixed schedule until the loan is paid in full. A Line of Credit, on the other hand, is open-ended which typically means that there is no set timeframe by which you must repay the loan in full. There will, however, be required minimum payments which will include any fees, interest and required principal paydown subject to the terms of the product you applied for. As mentioned above, as you pay down the principal balance of your Line of Credit, or if you did not initially withdraw the entire amount available to you, you can access the remaining credit available up to your credit limit.

Which Product is Right for You?

The best option for you will depend on what types of product are available in your state of residence, and what financial solution best suits your current needs. Always remember to fully read the terms of conditions of any product that you’re applying for and ask the right questions to make sure the product is right for you.

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