Online Installment Loan vs Line of Credit: How to Compare Your Options

Nowadays, unexpected financial emergencies are par for the course. It’s not unusual to hear about neighbors, friends, and family dealing with a layoff or unexpected bill. You may be dealing with an emergency of your own.

Any unanticipated bill or repair that comes your way may be challenging to handle on your own. If your budget is already stretched thin — and your savings emptied out — you may need to borrow money online.

Enter the question: should you borrow an online installment loan or a line of credit? Either option may help you when your savings leave you in the lurch, so it may not be easy to choose one over the other.

Keep scrolling to learn more about your options. This helpful guide will teach you the ins and outs of them both.

Installment Loan Vs Line of Credit: What’s the Difference?

The biggest difference between these two options boils down to this: one is a close-ended loan, and the other is an open-ended one.

What is a Closed-Ended Loan?

An installment loan is an example of a closed-ended product, but it can be any loan that has a firm term or lifespan. You’ll receive your funds to use as you wish, along with a timeline for when you have to pay it back, plus fees and interest.

Your repayment schedule typically outlines the following info:

• Due dates for each payment
• The size of each payment
• What portions of your payment go towards your principal and interest

One of the benefits of online installment loans is this repayment style. Rather than having to repay everything in one payment, you’ll have multiple payments (or installments) to meet this goal.

Eventually, you’ll pay off what you owe. Here, the word "close-ended" refers to when you pay off your debt and shut down (or close) the account. If you need more money, you’ll have to apply for a brand new installment loan.

What is an Open-Ended Loan?

A line of credit is an example of an open-ended loan.

The term "open-ended loan" simply means it doesn’t have a firm lifespan like online installment loans. There’s no end date, so it remains open in perpetuity.

Instead of receiving your funds upfront, you’ll get a line of credit limit that you may withdraw from on an "as needed" basis. Each portion uses up a part of this limit, tying up the equivalent amount until you pay it off.

As for an online line of credit, your repayment information will come in the form of a periodic statement. This statement may contain info like:

• Your outstanding balance
• Interest, finance charges, and other fees
• Minimum payment to keep the account in good standing

Once you pay off your balance in full, your access to your line of credit limit resets. You’ll be able to access your full limit again without needing to apply.

Which One Should You Choose?

Now that's a question for another day. Wait until you find out the rates, terms, and conditions involved with these options. These stats let you know the true cost of borrowing, whichever option you decide.

Until then, at least now you understand the basics behind these financial products. Deliberate on whether having a final repayment date would help your budget or having a revolving credit limit for a future emergency holds more value.

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