Not all of us have money when we need it. For many, tapping into other resources is essential. Personal lines of credit can help.
A personal line of credit is borrowed money that gets paid back. But it’s not exactly a personal loan and not quite a credit card. Here’s what you should know about personal lines of credit and why you might need them.
What is a personal line of credit?
A personal line of credit is kind of a mix between a credit card and a personal loan. It lets you use as much or as little as needed, and then you pay back what you owe with interest.
A line of credit vs. a personal loan
Personal loans and personal lines of credit are similar but not quite the same. A personal loan is given out in one lump sum, while a line of credit is reusable. With a line of credit, you take out money when you need it and pay it back much like a credit card.
The amount you’re allowed to borrow for either depends on your credit. You might not get approved if you don’t have a good credit history. If you show your creditworthiness, you’ll be able to dip into your personal line of credit whenever you want.
A line of credit vs. a credit card
Credit cards are good for making purchases and earning rewards, while personal lines of credit are helpful when you need cash.
But getting a personal line of credit might not be as easy as getting a credit card since not all banks offer personal lines of credit. Check with your bank for details.
A personal line of credit is very much like a credit card in that it’s also a type of revolving credit. Credit cards usually charge a fee for cash advances, but a personal line of credit is made specifically for a cash advance.
Why would you need a personal line of credit?
You can use a personal line of credit for anything, including paying your utility bills or paying off your student loans. But affording a personal line of credit depends on your job and income.
The good news is that if you don’t have a regular income or if you earn commission, a personal line of credit can keep your finances balanced. To avoid falling behind on bills, a personal line of credit can help you cover emergency expenses or simply stay current on your bills.
Are you eligible for personal lines of credit?
Getting a personal line of credit requires a credit check. If you have good credit, this shouldn’t be a problem. But if you have poor credit, this isn’t going to work for you.
Since this is the only way you can qualify for a personal line of credit, you might not be able to get one if you can’t prove your creditworthiness.
Like a credit card, a personal line of credit has limits. So make sure you don’t “max it out” and use only what you need. You also might end up paying an annual fee.
Alternatives to a personal line of credit
Whether you’re looking to build credit or stay up to date on your finances, there are some alternatives to personal lines of credit you can consider.
Personal loans
If you need help paying off bills but can’t get a personal line of credit, a personal loan is a good alternative. Minimum FICO requirements are as low as 580 for some personal loan lenders, so poor credit won’t always hurt your decision.
Even if you think you won’t qualify for a personal loan because of your poor credit, there are options if your credit score is below 550.
Personal loans are helpful for paying off high-interest debt, as they tend to have lower interest rates than credit cards. So if you have a steady income and can pay off a personal loan, it’s worth looking into.
Credit cards
If you’re looking to boost your credit, you might consider getting a credit card. Credit cards are great for starting your credit journey or building your credit if it’s in a slump.
If you don’t have any credit at all, getting a secured credit card can help. A secured card lets you put down a deposit upfront, and that serves as your credit limit. So if you put $250 down, your credit limit will be $250.
To avoid getting hit with big interest fees, make sure to pay off your balance in full every month. If you find yourself unable to pay off the entire balance, at least make minimum payments. That way your credit score won’t suffer.
Take caution before taking out a personal line of credit
Before you decide if a personal line of credit is right for you, determine what you need it for and whether you can pay it back. A personal line of credit could benefit you, but always do your research to make sure it makes sense for your situation.
Interested in a personal loan?
Here are the top personal loan lenders of 2018!| Lender | Rates (APR) | Loan Amount | |
|---|---|---|---|
1 Includes AutoPay discount. Important Disclosures for SoFi. SoFi Disclosures
2 Important Disclosures for Citizens Bank. Citizens Bank Disclosures
* Important Disclosures for Upgrade Bank. Upgrade Bank Disclosures
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