Introduction
When you’re faced with the unexpected, but important expenses, the good news is that there are several financing options out there. The real dilemma is deciding which one is the best solution for you. That decision depends on your answers to the following questions:
- What options are out there?
- How does each option work?
- How do these alternatives (specifically, personal lines of credit) differ from credit cards?
Let’s jump in with this easy personal line of credit guide. It will tell you everything you need to know to make the right choice for you and your family.
What is a Personal Line of Credit?
A personal line of credit is a revolving line of credit that you can typically access for a fixed period of time. Like personal loans, PLOCs can be used for just about anything. A personal line of credit provides you with extra money whenever you may need it. However, they tend to be better for ongoing needs, such as a long-term home improvement project or extensive medical care. It can serve as a little extra protection when it comes in handy. Depending on your credit limit, you can even use your personal line of credit for larger purchases!
How Personal Lines of Credit Work
Personal lines of credit generally come with variable interest rates, and since your payment scales to the amount you borrow, your monthly payment may also change frequently. If you pay extra on your line of credit, you can refresh your credit limit so you can borrow more money again in the future. Typically, these have a fixed lifespan that’s divided into two phases: the draw period and the repayment period.
During the draw period, a PLOC functions much like a credit card; in the repayment period, it acts more like an installment loan. Once the repayment period starts, you no longer have access to your credit limit. You must pay what you borrowed back by the end. Some personal lines of credit don’t have a repayment period. They require you to make a “balloon payment” at the end of the draw period to repay all of what you’ve borrowed.
Personal Lines of Credit vs. Credit Cards
Although they function somewhat differently, credit cards and personal lines of credit both allow you to access borrowed funds. The big things to compare are how you get approved, what rates and fees you’ll pay, and how flexible each one is.
- A personal line of credit (PLOC) usually comes with lower interest rates than a credit card, but it’s often easier to qualify if you have a higher credit score.
- Credit cards are more widely available for all credit types — but that usually means higher rates.
What about a personal line of credit for bad credit?
Even if your credit isn’t perfect, you can still get a PLOC; it just might take more effort, and your terms might not be as good as someone with great credit.
Wrapping Up
If you need flexible access to cash, both a personal line of credit and a credit card could work — it just depends on your preference (and wallet). Take a minute to compare the interest rates, fees, and repayment rules so you’re not stuck with a deal that drains you later. Whatever you pick, make sure it’s the kind of credit that actually fits your life and your goals.
Still in need of debt resolution support or credit card debt forgiveness guidance? Contact the team at PDS today.
