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Personal Lines of Credit: What You Must Know

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Personal lines of credit are a handy tool in your financial arsenal that can truly save the day should an unforeseen financial emergency arise. These loans function like a credit card minus the plastic. To access your funds you simply sign your John Hancock to a check specific to that account, get on the phone with the bank or log in online. Although personal lines of credit are not secured, they also function like credit cards because you will receive a monthly statement, have to make payments on those statements, are assigned interest and they do have fund limits. They are available at nearly bank and credit union as long as you do business with that particular institution. If you are unfamiliar with personal lines of credit here five things to mull over if you are contemplating procuring one.

How Are Personal Lines of Credit Obtained?

It’s pretty simple really. It’s the same as receiving any other loan or credit card because you need a quality credit score and payment history. Even if you never touch it, the best time to fill out the paperwork is when you are in a stable financial situation. If times are tough, odds are you will not be qualify for personal lines of credit.

It’s There Whenever You Need It

You never have to remove any funds from personal lines of credit, but anytime you are need, such as car repairs or a leaky roof, it is very convenient to access. Also, it is like having one loan you can use over and over as long as you pay it back. There is an interest fee, but that based only upon the money that has withdrawn rather than the total credit limit and you can take out your cash anywhere.

The Impact on Your Credit Score

Personal lines of credit can be an amazing item to boost or maintain your credit score or send it swiftly into the abyss. Why? Because they are treated as an open line of credit. Therefore, if you do not use them or use them sparingly your credit score will be high because of the available credit you possess. If you take out enough money to place your near your limit, it will do some damage to your credit score.

The Negatives

Like anything else, personal lines of credit do possess negative characteristics. For one, many of them charge usage fees when funds are extracted. There has to be some catch though right? Also, the interest rates on this financial tool can be pretty steep and normally range from 8.9 to 18 percent. The interest is also not a tax write off either like say a mortgage. This can be a real sticking point for some people.

The Plus Side 

Personal lines of credit definitely have their bonuses. The majority are linked to a checking account and operate as such so you literally can bounce a check while still being protected. Another perk is people can normally withdraw funds from personal lines of credit within 48 hours of being approved.

 

 

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