Financial products come in a wide variety of shapes and sizes, and finding the right one to fit your borrowing needs may require some research. In addition to personal loans, credit cards, and home equity credit lines, it might be worthwhile exploring the advantages of a personal line of credit. (1)
What is a personal line of credit?
Like a credit card, a personal line of credit is revolving credit. You are assigned a credit limit when your account is established, and your available credit opens back up once debt is paid off, so you can borrow up to your credit limit more than once. You only pay interest on the amount you borrow. When you need to borrow money but it’s unclear exactly how much, a personal line of credit can offer flexibility.
Most personal lines of credit are unsecured. In other words, you won’t have to offer any collateral to secure the loan, as you would with a home equity credit line where your house is used as collateral to guarantee the loan. This makes personal lines of credit more attractive than some other types of loans, but it also means you need to have good credit to qualify.
When should you use a personal line of credit?
A personal line of credit can help you manage ongoing expenses, supplement your income, or serve as an emergency fund. You’ll likely save in interest payments compared to a credit card, payday loan or cash advance. A personal line of credit can be customized to fit your particular circumstances, but here are seven ways you might want to use one:
1. Providing a rainy day fund. An emergency fund is one of the best ways to handle life’s unexpected expenses, but if your current rainy day fund is smaller than you’d like, a line of credit could act as a backup to help provide cash when you need it.
2. Supplementing irregular or seasonal income. If you’re an entrepreneur, freelancer, or business owner who experiences seasonal cash flow variations, a personal line of credit can help provide the cash flow you need when your income dips. Then, when business picks up again, you can repay what you borrowed.
3. Consolidating high-interest debt. Whether it’s credit card debt, a high-interest car loan, or some other form of financing, a personal line of credit may allow you to pay off those loans and get some breathing room.
4. Obtaining quick cash. Sometimes long-term financing takes time. If you need to move quickly on an investment or a purchase, a personal credit line can be a ready source of cash while you work out long-term financing.
5. Funding home expenses. Most homeowners need to make repairs or upgrades at some point, whether it’s replacing outdated appliances or repairing an air conditioner. While a home equity credit line may be preferable for large expenses, these smaller purchases can be handled quickly and easily with a personal line of credit, which doesn’t require you to use the equity in your home as collateral.
6. Paying medical bills. Illnesses or accidents may mean medical bills that you didn’t budget for. If your insurance is slow in paying, or if you have a high-deductible plan, you can use your line of credit to pay doctors, hospitals or labs while you recover.
7. Refinancing student loans. If you’re carrying student loans from multiple lenders, a personal line of credit could allow you to combine your payments into one amount that you can pay off according to your own schedule. If your student loan interest rates are higher than your line of credit rate, you may even save money in the process.
Everyone’s financial situation is unique, so it’s helpful to have options when it comes to borrowing. To find out more about a personal line of credit from Nevada State Bank, talk to your banker or stop by any branch.
1. Subject to credit approval. Terms and conditions apply. $50 documentation fee applies.$50 annual fee applies if loan does not carry a balance during one statement cycle. Minimum draw of $500. See a banker for full details.