When you are in need of additional funds, you have several options available to you. One of those is a personal line of credit. A line of credit is basically a loan that is used in the same way as a credit card. The lender provides you with a certain maximum amount. You use only what you need at the moment and then you only pay the interest on the amount you use.
When is it a Good Idea to Get a Personal Line of Credit?
Getting a personal line of credit is a good idea when you need to borrow money in increments that are ongoing. For example, if you are having home improvements made in your home over the course of several months, you would want to draw certain amounts of money at various times to pay off the contractors doing the work. The line of credit is also useful when you run the risk of overdrawing your checking account if you were to pay via check or debit card.
One of the best things about a personal line of credit is that it doesn’t require that you put down any collateral. That means that you cannot lose any personal property if you don’t pay back the interest on what you owe.
How do You Get a Personal Line of Credit?
You can also a personal line of credit based on your credit history. Generally, to qualify, you need good credit and a credit score of at least 680. It’s important to keep on top of your credit score and check your credit report before you apply for any line of credit loans. In general, the best time to apply for it or any other type of loan is when your finances are in good shape. In other words, avoid applying for a personal line of credit if you are in debt.
What are the Pros and Cons of a Personal Line of Credit?
There are certain advantages of a personal line of credit. They include the following:
• You don’t have to pay interest on the full amount you borrow before you need it
• If you have an unsteady income, you can use a line of credit to pay your bills while waiting for your next paycheck
• The interest rates on personal lines of credit are typically lower than those on personal loans
• You can write a check on a personal line of credit, which means you can possibly get a discount from companies that don’t accept credit cards and want to avoid fees associated with them
• You can use it for emergencies
• It can help you to stick to a budget
However, there are also cons, such as the following:
• Danger of overspending due to available line of credit
• Higher interest rates than other types of loans, such as a HELOC
• Annual fees
• Don’t diversify your credit accounts
• Difficult to qualify for if your finances aren’t in good shape
Overall, a personal line of credit is a good thing to have if you need extra money on hand. Be sure to do your research so that you get the right one. Always be wise about how you use the line of credit as well.