Wondering about personal lines of credit? Here's what to know.
Nov 30, -0001
A personal line of credit can give you instant, ongoing funds for your goals, often with interest rates lower than credit cards. It’s a great option for whatever life throws your way, but there are some downsides.
Just like a credit card, a personal line of credit gives you access to funds immediately. And you only pay interest on the money you use. That’s super handy when you have a big project or bill with lots of unexpected costs or if you want to consolidate high-interest debt.
How does a personal line of credit work?
When you apply for a personal line of credit, a set amount of money is made available to you over a period of time, called the draw period. You choose when to draw out the money. And you only pay interest on the money you use. If you repay the funds during the draw period, it replenishes your balance.
What is a personal line of credit good for?
There are many uses for a personal line of credit. But, generally speaking, it’s best for situations where you have ongoing expenses and you may not know the full cost of the project, like a kitchen remodel, unexpected medical expenses or dental procedures, or financing a new car The interest rate for a personal line of credit is typically lower than a credit card and comes with higher credit limits so it’s a better choice for bigger expenses. It’s also a good option for paying off high-interest debt.
How is a personal line of credit different from a credit card?
Both a personal line of credit and a credit card provide the borrower with access to funds that can be used when they choose. But there are significant differences:
- The interest rate for a personal line of credit is usually lower than a credit card.