A line of credit loan can come in handy when you need it most. If you’re looking to make a home renovation or need financial assistance for a medical emergency, you can take out the amount that you need and pay it back as you can over time. Here are four things you should know about line of credit loans to find out if this loan option is right for your needs.
You can access funds as needed
A line of credit loan is like a pool of money. You can borrow from it at any time to cover essential or emergency expenses. You don’t have to borrow the entire amount all at once, and there are no limitations on what you can use the money for. With a line of credit, borrowers can pay for car repairs, home maintenance, or catching up on household bills.
Lines of credit have flexible repayment terms
With a line of credit, you don’t have to pay back the entire balance of what you owe right away. Line of credit lenders give borrowers the option to repay the funds all at once or over a specified time period. If you choose to pay off the line of credit over time, you can make at least the minimum monthly payments plus any interest and fees. This makes these loans more flexible and easier to budget for. But keep in mind that you may have to pay off your entire balance once per year, so make sure you have a good repayment plan in place.
You can get a secured or unsecured line of credit
When looking for a line of credit loan, it’s smart to know the differences between secured and unsecured lines of credit. A secured line of credit will require you to use an asset as collateral to secure your loan. The value of the collateral used for the loan must exceed the limit of the line of credit. Assets can be a car, house, certificates of deposit, or savings accounts. If you’re unable to return the loan, the lender can legally seize your asset.
An unsecured line of credit does not require you to provide collateral, making them riskier to lenders. Some lenders will require you to have a good credit score and a history of on-time payments to qualify for this type of loan. Luckily, there are also many unsecured lines of credit for borrowers with poor credit that come with less strict requirements. With these loans, lenders will consider factors in addition to credit score like income and current debts when deciding whether to approve you.
There are several types to choose from
There are many types of line of credit loans that borrowers can choose from, including:
- Personal line of credit: You can use a personal line of credit to cover any type of expense. These loans can come in handy in situations where you’re unsure of how much money you’ll need, such as home renovation projects.
- Home equity line of credit (HELOC): A HELOC is a secured line of credit that requires you to provide your home as collateral. Borrowers can receive a loan amount based on how much equity they have in their home.
- Business line of credit: This line of credit loan lets businesses borrow money as needed to cover expenses. The loan amount and loan terms a business can receive depend on its market value, risk, and profitability.
The bottom line
When you need flexible access to money, a line of credit can be a great option to get fast funds. With these loans, you can access money as needed, and don’t have to pay it back all at once. Do your research and compare lenders and loan options to find the right line of credit for your financial situation.
Notice: Information provided in this article is for information purposes only. Consult your financial advisor about your financial circumstances.