What Is A Personal Line Of Credit & How Does It Work?

A personal credit line can be seen as a loan from the bank that functions like a credit card system. This means that you will have a particular amount of money under the loan, just like the limit of a credit card. You can then use this money for anything that you want.

It is quite easy to secure a personal credit line, as all you will need is proof that you are the kind of person who repays a debt on time. You will also need a credit score of 700 and above to qualify for this service.

Personal line of credit

The Uses of A Personal Line of Credit

There is no limit to what you can use a personal line of credit for. However, the failure to repay a loan at the specified time can result in complicated financial issues.

A personal credit line can be used to tackle your needs at home. However, there are various scenarios that make taking it worth considering, for example, its flexible repayment and interest rate options.

Here are a few ways to use a personal credit line:

Funding Projects with Challenges: Getting funds for projects can be challenging to anyone, especially when an unforeseen project that needs urgent attention comes up. For example, while planning the wedding of your daughter, your roof suddenly needs replacing. You can easily fix these situations with a personal line of credit.

Irregular Incomes: This is for those who have no means of determining the exact amount they earn within a given time. The type of people that usually fall into this category are people who work on commission and those who are self-employed. They can easily pay monthly bills by using a personal credit line as they wait for the next paycheck to arrive.

Emergency Scenarios: Everyone gets into situations that they cannot control. We are all victims of emergency scenarios at some point in time. For example, you were about to pay your son’s college tuition when the credit card and tax bills come up at the same time. A personal credit line can help to boost my credit and consolidate debt.

Advantages of A Personal Credit Line Over A Credit Card

Here are a few benefits that a personal line of credit has above a credit card system.

·         A personal line of credit is a better alternative to the credit card system because it offers a lower rate of interest than the credit card does.

·         It also affords different access to cash instead of a loan for a single purpose or lump sum.

·         If the credit line remains open, you can take loans in increments, pay them back, and then borrow again.

·         It is quite different from a regular loan because you only pay interest on the borrowed balance instead of repaying in fixed installments.

Personal line of credit different from a regular loan

Challenges with A Personal Credit Line

Everything with an advantage has a disadvantage, and a personal line of credit is not exempt.

·         Getting your request approved and the interest rate that banks charge are the two greatest challenges.

·         Banks take a huge risk when giving out loans because all they have from the client is a good credit repayment history. This makes getting one very difficult for those who have a poor credit repayment score.

The bottom line is that a personal credit line often comes handy in emergency situations. If you are in urgent need of some funds and have no idea where to get them fund, a line of credit is a great means to do so.

However, as stated earlier, there are a few setbacks that you may need to consider. Defaulting in payment can have a negative impact on your credit. It is possible that you lose any collateral used in securing the line of credit in the first place.

If you are struggling to gain financial stability, easy access to funds can be a challenge in the long run. Hence, it is important that you develop a payment strategy before securing the credit line.

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What to Consider Before Getting Your First Credit Card

Getting your first credit card means setting off on a road of financial freedoms, as well as taking on a huge responsibility. When researching credit cards, there are a lot of different things to consider! From interest rates, to payments, as well as all of the reasons to have one, you should keep in mind a lot of different things.

Why are You Getting a Credit Card?

All in all, getting a credit card is a major life decision. How you use it and manage the payments can greatly affect you in the future! Before you get your first card, you should really contemplate all of the reasons why you are getting it. You can also look into why you should get a card to begin with!

Why are You Getting a Credit Card?

You Need it for Purchases

If you’ve traveled in the last few years, or tried to make a large purchase, you will find more and more things require a credit! Not only that, but you can’t even make the purchase without one! Here are a few things that you will likely need a credit card for:  

  • Building a Credit History. In order to build a credit history beyond student loans and mortgages, a credit card is a good idea. This will help you to make large purchases down the road. All things considered, houses, cars, boats, condos, anything having to do a credit check beforehand will lead to you needing a good credit score.
  • Renting a Car. Not only can you travel using credit card points, but you can also use a card to rent a car. It’s actually a requirement for most major rental car companies. Because companies don’t want to risk their assets, if you damage a rental car, they need you to pay. A card is a great way to ensure they get their money.
  • Reservations for Hotels, Cruises, Vacations, etc. Although you can make a lot of reservations with a debit card, there are some companies that only make reservations with a credit card. Not only can you not book the destination packages, but you may not be able reserve the holiday of your dreams to begin with!

Altogether, there are more and more purchases that you can only make with a credit card.

Credit Card Rewards

One of the reasons you may be looking into your first credit card may be to reap the widely advertised benefits. You can get discounts at places you regularly buy goods from, or even services provided. Not to mention the wide array of cash rebates, travel rewards, merchandise perks, gift cards, and so much more that credit card companies offer! All things considered, it’s not a BAD reason to get a credit card and build a credit score.

First Credit Card Need to Know

Before you get you first credit card, you should know how you’re going to pay it off, all of your personal limitations with spending, as well as how you’re going to use it! Like knowing what happens to your debt when you die, you need to know all the different details about your own spending and debt.

Whether you simply use it to fill your gas tank, to get groceries, or even to buy plane tickets, you should first know whether you can pay your minimum monthly payment. Once you know this information, you can get down to the nitty gritty of what you need to know before getting your first credit card.

How Do Credit Cards Work?

One of the most important factors to consider when getting credit cards is how they actually work! Having a credit card is like taking out several tiny loans. First, you’ll get approved for the card. Secondly, you’ll begin to make purchases with said card. Thirdly, you’ll repay the outstanding balance within your thirty-day period to avoid interest. Building your credit history can be uncomplicated, inexpensive, as well as rewarding!

Credit Cards Interest Rates

There do come times when paying off your entire balance within the thirty-day period is, in a word, impossible. Because your first card will be a new experience, it’s important to understand interest rates before you sign up!

Credit Cards Interest Rates

Interest rates are calculated according to your unpaid balance, or your average daily balance after your payment is due. Next, this figure is multiplied by the card company’s annual percentage rate (APR), as well as the number of days in the month, and other figures in your contract. Finally, you have your monthly interest rate that accrues if you continue to let your balance go unpaid.

It’s good to know exactly how this works in detail. If you have questions, or even need someone to explain it to you in more thorough detail, you can always contact the credit companies directly. This makes it easier to understand what may happen if you can’t pay the entire balance each month, as well as how you can help avoid paying the rates to begin with!

Knowing the Ins and Outs of Your First Credit Card

There are so many things to consider when researching getting your first credit card, perhaps of many. Whether you’re looking into finding the interest rates, knowing how you can pay off the minimum monthly payment, as well as finding the right rewards, there are a lot of factors! Using these helpful points, you can confidently sign up for your first credit card and start spending wisely.

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