A personal credit line is a bank loan that closely resembles a credit card in the sense that you can borrow the money from your credit line and then pay it back within a set time.
Personal lines of credit are often used for large purchases and projects. They are often used for things like home remodeling, but also might be used for an expensive holiday, emergency medical expenses, or college tuition.
There are various types of credit lines available, each with its own features and purposes. Next, we’ll explore the different kinds of credit lines you can choose from.
Unsecured Lines of Credit
An unsecured line of credit allows you to take money out without having to provide security or collateral. Â
The sum of available credit is replenished when you repay the unpaid balance-meaning you can borrow against it again and again.
Secured Lines of Credit
Personal Lines of Credit
With this credit line, you have access on a revolving basis to unsecured funds that you can borrow and repay.
Although there are some general requirements that you need to fulfill to be eligible for these types of credit lines, some significant variations will depend on the lender in this sector.
For example, obtaining a personal line of credit from a bank typically requires a credit score of 680 or higher.
Home Equity Lines of Credit
A home equity line of credit (HELOC) is a revolving credit line secured by the value of your home. You can use the money for things like consolidating higher-interest rate debt.
Business Lines of Credit
A business line of credit is a revolving loan that offers access to a set amount of capital, which can be used to meet short-term business needs as required.
A line of credit is a way for an organization to finance short-term working capital needs, such as purchasing inventory.
Uses for Lines of Credit
Personal credit lines can be used for nearly any purpose, but failing to repay them on time can result in significant financial problems.
Lines of credit can come in handy if you find yourself in the following circumstances.
Self-Employed
You are self-employed or working on commission, and you don’t have a steady income. One month, you might do very well and the next not so much. In this situation, a credit line can help get you through the tough spots.Â
Consolidation
You might have dug yourself into a hole over time with numerous credit cards. These cards have high-interest rates, while a line of credit typically offers a lower interest rate. With a line of credit, you can merge the debt, and pay less.
Overdraft Safeguard
A line of credit will serve as a backup when you need overdraft insurance if you are a regular check writer with unreliable revenue.
This can also be an opportunity for business start-ups. If you want to purchase a company or trigger growth by ads, marketing, or participating in trade shows, a credit line can help.
Benefits
Personal lines of credit also have lower interest rates than credit cards, making them a much better borrowing option. Instead of a lump-sum, single-purpose loan, they also provide flexible access to cash.Â
A line of credit can be utilized for various purposes, such as paying student debt, tuition, purchasing a car, and more.
Conclusion
Although you can have several credit lines simultaneously, it is essential to ensure that you can make all your payments. If you can’t keep up, you could lose access to your credit line.
