Here’s what Samya Namir, Advisor, Transactional Services and Small Business, at the National Bank branch located at the corner of Saint-Hubert and Beaubien, in Montreal, advises.
Are you disciplined?
The personal loan is a loan that is repaid over a fixed period, by making equal amounts each month, every two weeks or every week, for example. At the end of the agreed period, the debt is repaid.
A line of credit is an arrangement whereby the bank provides you with the ability to borrow the amount you need, when you need it, up to a predetermined limit.
Unlike the personal loan, you are not required to repay the capital of your loan each month. Your minimum payment only covers accrued interest.
To obtain a line of credit from the bank, you must have a certain level of income and a good credit rating.
The line of credit generally offers a lower interest rate than the personal loan.
If you want to use a margin to make major purchases, you have to be disciplined, says Samya Namir. “You have to know each other,” she said. For some, a line of credit is not suitable. »
The line of credit: for security
According to Ms. Namir, the line of credit should be seen “as a life jacket”. Having a line of credit is a kind of safety cushion in case the unexpected happens.
For example, if your money is tied up in investments and you lose your job, the line of credit can allow you to meet your obligations for a while.
Plus, the line of credit can be used to make larger purchases if you know you’ll be able to pay off the debt quickly. You can even buy a car by borrowing on a line of credit, if you are sure you have the discipline to repay the loan quickly.
In this type of situation, the line of credit saves you from having to apply for a loan from the bank; the credit is already available.
However, you have to be careful: if you don’t use it, the line of credit costs you nothing. On the other hand, if you use it and you drag a balance for a long time, it can end up costing you dearly, even if its rate is lower than that of a personal loan.
If you need to do work on your home, it’s best not to use a personal line of credit. Instead, turn to the home equity line of credit, a credit formula based on the value of your home.
The personal loan: more accessible
The main advantage of the personal loan is that it is more widely accessible. Indeed, your income does not have to be high for you to be eligible.
Plus, because the payments are fixed, you don’t have to discipline yourself as much: it’s easier to pay off a loan with equal payments each month than to go with the cash available, day-to-day. .
The personal loan can be used in many situations, such as buying a car, consolidating debts, etc.
But be careful: it is important to always ensure that you have the funds to make the payments at the agreed time.