UNDERSTANDING LINES OF CREDIT DR. TERESA R. MARTIN
This is unfortunate, because a line of credit has many
unique features that set it apart from other types of
loans. A line of credit is similar to a credit card, but
with better interest rates.
Figure out if a line of credit might be the perfect
source of funds for you:
3. A line of credit is a flexible loan from a financial
institution. A line of credit has a limit, just like a credit
card. You can use the available balance as needed.
•Interest is charged as soon as the money is
borrowed. The borrower can repay immediately or according to a predetermined schedule.
•These loans tend to have a lower risk for banks, so they like to provide lines of credit. The default rate is
much higher for credit cards. But, it’s important to qualify because it’s an unsecured loan.
4.There are many times that a line of credit can be useful. Banks prefer to refrain from making onetime
personal loans, especially those that are unsecured. It’s pointless for a borrower to take out several
shortterm loans over the course of a year. A line of credit bypasses these issues by making the money
available as needed.
•Lines of credit aren’t normally
used to make large purchases.
They’re mostly used to even out
the variability of monthly income
and expenses.
•While a credit card can
perform the same function, a
line of credit is usually less
expensive
to
use.
The
interest rates are significantly
lower and the payment terms
are more attractive.