What is the Difference Between a Term Loan and a Credit Line?

Looking for the money you need can get a little confusing. There are several different options that may seem similar and may even look like a good solution but knowing what you are getting into can help you to make an informed choice. When you consider Term Loans VS a Credit Line many people do not realize that there are clear benefits to choosing a credit line over a term loan that you may not know exist.

The Repayment Options

Most people know that when you take a “term loan” the terms of that loan, such as repayment amounts and due dates are clearly outlined. You are not often given much flexibility in the length of the loan, how much the payments will have to be, whether you can prepay without penalties and how you will receive the funds. This chart gives you a quick reference to the difference between term loans and a credit line:

Term Loan

Credit Line

Repayment terms

Lump sum monthly payments

1-2% of balance




Payments begin when money is transffered



Amortized interest



Credit lines offer you the flexibility of only taking what you need when you need it and then only paying 1-2% of what you owe each month. Term loan amounts are dictated and once you accept the loan you have to make monthly payments of the loan amount.

Credit lines are revolving which means that you can use it over and over again. For example if your credit line is equal to $20,000 and you use all $20,000 as you repay it you can continue to use the amount of money that is freed up. Once you pay down the credit line you can reuse it over and over again without ever having to reapply.

Once you take a term loan, you have to pay it off before you can reapply for money!

Credit lines offer simple interest rates that are NOT amortized, but term loans do not. You can end up paying a lot more for a term loan that you do for a credit line.

Learn More

To learn more about the value of a credit line as a funding option your Credit Caregiver can answer your questions and help you to make an informed decision. It may be the best solution for your needs!