How to differentiate between home equity loan and line of credit?

By: Namrita Chhibber

Often, people are seen getting confused between a home equity loan and line of credit. Home equity being the financial value of a property against the loan taken, is divided into two types- standard home equity loan and line of credit loan. These types of home equity loans differ not just in their definition but also in the ‘pros and cons’ provided by them.

Home equity loans or closed ended loans are a kind of loans which are bounded with flat and preset conditions, interest rate and monthly repayments. Whereas, a line of credit loan is much flexible kind of loan and works more or less like an ATM account as in line of credit you have an option of withdrawing money whenever you need it.

You might be looking for a loan to buy a home for yourself or to renew a portion of your home or more but before deciding on a particular type of equity loan you need to understand the difference between both the equity home loan and line of credit.

Difference between home equity loans and line of credit:

- In home equity line of credit you can borrow money with a gap period and anytime you need it, while in standard home equity loan you get to borrow the entire money at a time and you can withdraw further at a later stage. In other words you can access your money and pay back when needed

Thus due to this characteristic (withdrawing money at the opening and closing) of line of credit and home equity loans they are also known as closed end or open end loans.

- With a line of credit loan you get a fluctuating interest rate and finance rate for your monthly payment while in a home equity loan you get fixed interest rate and finance rate.

- Unlike line of credit loan where you get variable repayment amount, home equity loan provides you with a low and stable repayment facility.

- Home equity line of credit can be used to support urgent expenditure or money requirements where as home equity loan can be used for the needs with specific or fixed expenditure.

- Both the standard home equity loan and home equity line of credit loans also differ in the terms and offers provided by different dealers or lenders.

- With a line of credit loan you can integrate various projects or needs at a time but with a home equity loan you can borrow a limited sum of amount all at once, to fulfill the need of the hour.

Usually it advisable that if you need a fixed or specific amount of money then it is better you opt for a standard home equity loan or if you need money for various little chores then you should go for a line of credit loan.

In spite of the fact, that in both the loan types you will have to keep your house as a collateral or security against the money you borrow both the loan types i.e. standard home equity loan and line of credit loan vary in both minor and major difference.

People have different money requirements depending upon their situation or condition and both the home equity and line of credit loans are well designed to meet their needs, but to choose the one that suits them the most, they should first look at the differences between them. You can always compare these differences to understand your loan type. This will help you get the right deal for yourself and will also save you from any confusion or wrong decisions.
Home equity loans or closed ended loans are a kind of loans which are bounded with flat and preset conditions, interest rate and monthly repayments. These types of home equity loans differ not just in their definition but also in the ‘pros and cons’ provided by them.

Namrita Chhibber is a Professional Content Developer with expertise in Financial and Marketing Field, Working at Webart Softech.For More Information Please Visit: http://www.theloanbazaar.com

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