A line of credit works more like a reusable borrowing limit than a traditional loan. Instead of receiving one fixed amount and repaying it on a set schedule, you receive access to a maximum amount and can generally borrow only what you need. As you repay the balance, available credit may become available again, depending on the agreement.
A traditional installment loan is different because you usually receive the full amount upfront and make scheduled payments until the balance is paid off. A line of credit can therefore be useful when your expenses are uncertain or occur over time, while an installment loan may be more appropriate for a single, predictable expense.
When comparing the two, consider the interest rate, fees, repayment rules, and whether the rate can change. For business borrowing, you can also compare a business loan and line of credit to understand which structure better fits your needs.
