Line of credit loans
Most people are familiar with what mortgages and personal loans are, even though they may not have taken out either, but there are other ways of borrowing, including line of credit loans, which may be more suitable for your needs. Another form of borrowing is a credit card, where each time you use it you are getting a loan that must eventually be paid back. Their interest (APR) rates are often high unless you pay the balance off in full each month, in which case you won't be charged interest. If you don't pay the money owed off in full, you'll be met with accumulating charges. It's why investigating line of credit loans may be a useful way of meeting your borrowing requirements.
What are line of credit loans?
When you need access to finance and you're unwilling to either take out a credit card or put more and more spending on it, it's worth looking into line of credit loans. Effectively, these function rather like a credit card, where you're given a maximum amount that you can use over a fixed period of time. You borrow against that amount as and when you need money, and you only make repayments based on how much you borrow against your maximum amount agreed. It's similar to repaying debt on a credit card, and you only use as much as you need. It's different to a personal loan, where you get a lump sum and you agree a fixed or variable interest rate and have a fixed term for repayment.
What do you use line of credit loans for?
In many cases, line of credit loans are used by people whose borrowing needs vary. For example, you may have equity in your home and want to follow your dream of building a new one or simply making an extension and other alterations to your current abode. You don't necessarily know how much money you will need, so opening a line of credit can give the flexibility to pursue your project knowing that you can draw down sufficient money to complete it.
How do these loans compare to similar products?
Although you need to check around when considering a line of credit loan, the chances are that the interest rate charged will be lower than a personal loan, which is usually unsecured. A secured loan – for example, a home equity line of credit – could be much more affordable. You also need a good credit rating, so before you make applications and decisions, use one of a number of online tools to check your rating. The better it is, the more likelihood you'll have of being offered a lower interest rate.
Are these loans risky?
As with every loan, it’s worth evaluating the potential risks, such as the high interest rate compared to other loans. If you overstretch yourself and borrow too much, you could have problems with your repayment schedule. Managing this type of loan well means that you will be able to complete your project without the possibility of incurring financial penalties.