Personal Line of Credit

What is a line of credit?

A line of credit, also known as an LOC, is essentially a loan that can be used like a credit card. A financial institution will approve a borrower for a set amount and the borrower has full use of the funds as long as they don’t overdraw the account and continue to meet their monthly payments. And as you pay off the balance, that money becomes available to be reused again just like your credit card balance. However, unlike a credit card, an online line of credit will usually have a final date where the balance will need to be paid in full.

Getting approved for a personal line of credit is an excellent way to have extra funds when your income or borrowing needs vary. It can be a great way to finance a wedding, home improvement project, or as a way to fund your own business. It can also be used as overdraft protection in case you don’t have a fixed income or you have a medical condition that can keep you from working.

LOC’s typically are a far less expensive option than a loan, credit card, or cash advance in the long run and are less likely to land you in hot water with proper management.

How is it different than a loan?

Like a loan, you’re approved for the full value of the credit line up front and you have access to said funds. However, rather than having it deposited straight into your account or cashing a check, the money is an account that you draw from when you make purchases.

An open line of credit is also a revolving account as opposed to an installment account, which is what you’d get with a personal loan, signature loan, etc. This means that if you pay off the amount you’ve used on your credit line, you can spend that money again in a virtually endless cycle. When you pay off a loan, it’s done and you can’t spend the money again.

Another major difference is that you’re only charged interest on the money you use. So if you’re approved for $5,000, but you only use $300, you only have to pay interest on the $300 and not the full amount. The neat thing about credit lines is that their interest rate is usually lower than most credit cards.

What types of credit lines are there?

• Personal Line of Credit (PLOC): An unsecured credit line which requires no collateral down. PLOC’s typically have higher interest rates and lower limits than HELOC’s.
• Home Equity Lines of Credit (HELOC): A secured line with your home being used as collateral. HELOC’s typically require good credit history as they rely heavily on your credit score.

How does a personal line of credit (PLOC) work?

A PLOC is an unsecured account which means that it requires no collateral to qualify for. This is beneficial to you as the borrower since it speeds up approval time and you don’t have to put up an asset the lender can seize if you default. However, it can lead to higher interest rates, or denial of services, if your credit isn’t in great standing since the lender is shouldering all of the risk.

Once you’re approved, you can use as much or as little of the funds available to you on whatever you want. Similar to credit cards, your personal credit line doesn’t have a fixed monthly payment. You do have a minimum monthly payment that you have to keep up with in order to continue to have access to the funds. When you make that payment, those funds are available to be reused if needed.

Risks of an LOC

There’s risk involved with borrowing money of any kind from any financial institution. If you have a high credit score, stable disposable income, and proper money management, there’s very little risk involved. If anything, this may be far more beneficial and cost effective than a credit card or loan for you.

The main risk with a personal credit line is that most lenders have a variable interest rate which means that you’ll accrue interest at different rates depending on the market. The amount of interest you owe with fluctuate with how much the interest rate changes over a specific time frame. Depending on the financial institution, you’ll find interest rates as low as 7% that go as high as 25%.

Pros

Incredible flexibility: You can access your money anywhere, anytime and use it for whatever you want and pay it off as fast or as slowly as you like.

Lower interest payments: You only owe interest on the amount of credit used, not the amount loaned.

Lower interest rates: It’s not uncommon for LOC’s to have lower interest rates than credit cards.

Possible Discounts: Most lenders offer discounts or benefits on a guaranteed credit line if you have other accounts with them. These are typically having your fee waived, a lower interest rate, or a higher line depending on your history with them.

Cons

Bad credit is a problem: Lenders are very picky when it comes to approving unsecured funds to borrowers with less than ideal credit. If you have poor credit, focus on boosting your standing before applying.

Finite borrowing period: These lines don’t stay open forever. Most lenders will only keep this revolving account open for a few years since it is intended to be temporary. Be sure to double check your draw time before signing as the full amount will be due at the end of the period.

Fees and variable rates: Rates always vary from vendor to vendor, but LOCs typically have variable rates and annual fees associated with them.

See if you Qualify with King of Kash!

Need a fast line of credit? Get in touch with us today! King of Kash has been providing affordable loans for almost 40 years and has become one of the fastest growing lending institutions in Missouri. We’ve expanded our services into 8 states with many more on the way and we credit our growth to knowing and understanding your needs better than any other financial institution out there.

Our lending specialists will evaluate your financial needs to find the right borrowing option for you. They help you make sure that paying off your loans is as manageable and affordable as it can get. We pride ourselves on our ability to process loans quickly, provide decisions immediately, and with high approval rates. We understand your financial needs and are always willing to provide you the assistance you need.