What is The Difference Between a Term Loan And a Line Of Credit? - A term loan is a type of loan that gives you a lump sum of money that you have to repay over a fixed period of time, usually with a fixed interest rate. A line of credit is a type of loan that gives you access to a pool of funds that you can draw from as needed, up to a certain limit, usually with a variable interest rate. You only pay interest on the amount you use, and you can reuse the funds as you repay them.
Some of the main differences between term loans and lines of credit are:
- Term loans are suitable for large, one-time expenses, such as buying equipment, expanding your business, or refinancing debt. Lines of credit are suitable for ongoing, variable expenses, such as managing cash flow, covering emergencies, or taking advantage of opportunities.
- Term loans have a fixed repayment schedule, usually monthly or quarterly, that you have to follow until the loan is paid off. Lines of credit have a flexible repayment schedule, usually monthly, that depends on how much you use and the interest rate. You can also repay the balance in full at any time without penalty.
- Term loans usually have lower interest rates than lines of credit, but they may also have higher fees, such as origination fees, closing costs, or prepayment penalties. Lines of credit usually have higher interest rates than term loans, but they may have lower or no fees, such as annual fees, maintenance fees, or draw fees.
To learn more about term loans and lines of credit, you can check out these web pages:
Loan vs. Line of Credit: What’s the Difference? - Investopedia
What’s the Difference Between Term Loans and Lines of Credit? | Business.org
Term Loans and Lines of Credit: What’s the Difference?
Pros and Cons of a Line of Credit vs a Term Loan - ROK Financial