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You know one thing for sure: Some extra cash could really come in handy right now. But the best way to access it? That you're not quite so sure about. A personal line of credit and a personal loan might sound like similar options, but one could be better suited to your needs. Make sure to tap the right one to maximize the financial benefits.
The Basic Difference
A personal loan is what you think of when you hear the word "loan": A lump sum you receive after being approved, that you then pay back in fixed monthly payments. The rate is fixed and there are no origination or prepayment fees. Pretty simple, right?
A personal line of credit is more flexible. Similar to a credit card, you have a certain amount of credit you can draw on as often as you like and in whatever increments you need, up to a particular limit. Your monthly payments will depend on how much credit you're using at that time. Personal lines of credit typically come with low annual fees.
How to know a personal loan is right for you
When might the security of a personal loan be the right fit for you? Loans are best for one-time expenses for which you know how much you will need up front. The fixed repayment plan means you handle your financial need and plan your future budget around the payments.
Consider a personal loan if:
- You have a one-time home improvement need, such as a new roof or major repair.
- You want to consolidate debt from several high-interest credit cards or loans.
- You're planning a major vacation for which you've estimated your budget in advance.
- It's finally time for that speed boat you've been eyeing for years.
How to know a personal line of credit is right for you
The flexibility of a line of credit makes it a good long-term credit solution. You may not always need it, but having it available can make a number of situations easier.
A personal line of credit is a great option if:
- You're self-employed and your cash flow may be irregular from month-to-month.
- You're planning a wedding or other big event and will have to pay several vendors over a number of months, and the costs may change from the early stages of planning to the end.
- You've purchased a fixer-upper home and know you'll need access to home improvement funds on an ongoing basis.
- You just had triplets. You have no idea what these new additions to your life are going to need, but when they need them, you'll have to buy in triplicate.
No matter what your personal credit needs are, picking the right option will make your financing better fit your life.
During the Great Rate Event, eligible Wells Fargo customers can get special interest rate discounts off new Personal Loans and Lines of Credit.
This post is sponsored by Wells Fargo.
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