QandAs: Loans

What is a Personal Line of Credit?

Answer:
A personal line of credit is essentially a bank

loan that functions like a credit card. Rather than obtain a one-time lump sum of cash, individuals who apply for a personal line of credit can withdraw funds from a revolving line of credit on an as-needed basis.

A personal line of credit is advantageous for several reasons. For starters, the interest rate on the line of credit is much lower than credit cards. What's more, borrowers who choose to secure a personal line of credit with their home's equity can enjoy an even lower rate. One of the best features of a personal line of credit is that borrowers are not required to have collateral. In this situation, a borrower's personal finances (income, credit, current debts) determine loan eligibility.

There are many uses for a personal line of credit. Plus, the flexibility of this type of loan lets borrowers withdraw funds whenever they need extra cash. Use the money for home renovations, debt consolidation, family vacation, college, wedding, a new pool, etc. Repay the funds and use the line of credit repeatedly without applying for a new account. Lines of credit are revolving accounts, and monthly payment amounts can fluctuate. Therefore, it is vital for borrowers to control their spending and only withdraw reasonable amounts.


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