Understanding Personal Line of Credit

Cash shortages at month’s end are a common occurrence for many people. Even after months of planning and saving, there are times when you need to buy something expensive but are unable to do so. Well, unless you improve your salary, there is no cure for these problems. But let’s face it, you can’t double your income over night, and even using good money management techniques takes time for the results to show up in your bank account.

What then possibly be the answer to your immediate financial problems? Can you get a personal loan or borrow from your family and friends? Both of these won’t work in this situation since no one can lend you money repeatedly and you can’t get a personal loan everytime you need money. So what may the answer to this be?

Personal Line of Credit!!

Only when a loan may be used as a credit card can it be considered a line of credit. When choosing a personal line of credit, the borrower has complete freedom to use the credit however they see fit.

When a person chooses a line of credit, a certain amount is approved in their name, from which they are free to withdraw funds as needed. In comparison to credit cards and personal loans, lines of credit often have cheaper interest rates. Furthermore, only the amount used is subject to interest charges. The line of credit is more practical and economical for consumers thanks to all these characteristics. From paying bills to making a small addition to your monthly budget

Why Choose Line of Credit?

  • A personal line of credit allows you to withdraw money anytime you want from the money sanctioned to you. 
  • Interest is charged only on the amount used which reduces your EMI burden.
  • The interest rate for a personal line of credit is comparatively low as compared to the interest rate of an online personal loan.
  • A line of credit offers flexibility to users which is its main advantage. 

How does a Line of Credit Functions?

A set amount is placed in a person’s line of credit account when they choose one, but unlike loans, they are not required to spend it all at once. The borrower has complete discretion over how much money they use from the LOC for. Customers find LOCs even more alluring because they only pay interest on the money they actually use rather than the total credit limit. Additionally, based on their cash flow and affordability, borrowers can change their payback amounts as necessary.

Few Drawbacks of Lines of Credit

For people who occasionally experience financial difficulties, a personal line of credit may be more advantageous. The opportunity to borrow regularly and avoid paying interest on a sizable debt is a line of credit’s principal benefit. However, it would be incorrect to claim that a line of credit has solely benefits and no negatives. Let’s now concentrate on some of its disadvantages.

  • Credit Line (Unsecured) comes at higher interest rates than secured loans.
  • Interest rates for lines of credit vary widely from one lender to another.
  • Line of credit does not provide the same regulatory protection as credit cards. 
  • One major drawback is – if not used wisely, a line of credit can invite overspending habits which can further lead to debt traps.
  • Misusing a line of credit may hurt the credit score of the borrower. 

In the current situation where the majority of people are going through an economic crisis, opting for a line of credit can be one of the solutions to fulfil their financial needs and survive in this difficult time.

Leave a Comment