Line of credit personal loans
Have easy access to additional funds whenever you need them with a personal line of credit.
A personal line of credit can provide you with a convenient way to draw on funds as and when you need to. You can use the funds to consolidate debts, make multiple purchases or for a case of emergency. The flexibility of a line of credit allows you to withdraw funds up to a pre-determined limit. Interest is only charged on what you owe, not on the entire credit limit.
Find out more about this type of loan and if it’s right for you in this guide.
Compare line of credit loans
How does a line of credit personal loan work?
A personal line of credit works much like a credit card, giving you a specified credit limit to use however you like. The main difference is the limit is usually higher, while the rates are relatively lower than credit cards. You won’t need to submit a credit application every time you need to make a withdrawal. Once you’re approved, the funds are there for you to use whenever you need them. Charges are not made against your entire balance, but only on the funds you withdrew. You can even get some line of credit personal loans that are linked to a debit card, giving you extra flexibility.
How to compare line of credit loans
If you’re considering a line of credit loan, it’s important to compare your options so you get the right loan for you. Here are some features to keep in mind when considering the accounts available:
- The interest rate. Not only will you want to compare different interest rates, but you will also want to learn how they are applied. Check that interest is being applied only to the funds you have withdrawn, not on your total balance. Also, keep in mind that in some cases you may have the option of securing the loan against an asset which should result in a lower interest rate.
- The fees. Compare fees carefully as they are not always set out as clearly as the interest rate. While a line of credit may advertise without an annual fee, there could be monthly fees or an establishment fee. Make a running list of fees for each product you are considering and factor that into your loan amount. You can use a personal loan calculator to do this.
- The terms of the loan. You will find that there are two different term types to consider. One is known as a term plan, where you have a certain timeframe, which is usually between one and five years, to pay off the principal of the line of credit. The other type of line of credit will allow you to keep the loan open so long as you continue to make regular monthly repayments. This is also known as revolving credit and could be ideal if you want a funding source available as a safety net for an unexpected expense.
- How accessible your funds are. Another thing to consider with this type of loan is how you will access your funds. Again, read these terms carefully. While a bank may offer a card that can be used at ATMs, there could be charges applied for this convenience. You are going to want to weigh the methods of accessing the funds along with any fees associated with them.
Pros and cons
- You’re only charged for what you use. In most cases, you will be charged interest only on the funds you have borrowed as opposed to the total loan amount.
- You have easy access to your funds. If your account is linked to a card, you are able to draw the funds you need through ATMs and online banking.
- There are flexible terms. You can use the funds however and whenever you need to, making it a very flexible financing solution.
- Fees and charges. Be mindful that fees and charges will likely apply, such as an annual fee, establishment fee or a monthly service fee.
- Overspending. For individuals with little financial control, the thought of a seemingly unlimited amount of funds may cause them to make unnecessary purchases.
- Penalties. While the repayments for a line of credit personal loan are generally flexible, you should make sure that you scrutinise the terms carefully. Most will expect at least monthly repayments and charge penalties if that requirement is not satisfied.
How to apply
The eligibility criteria differ among lenders, so make sure to check this carefully before submitting your application. Be prepared with the following information as most lenders will have similar criteria necessary as part of the application:
- Income. You will have to show proof of an ongoing steady income. Your payslips are usually acceptable, or a bank statement which shows consistent deposits from an employer.
- Liabilities. You are going to be asked to provide a complete list of your currents debts.
- Identification. All lenders will need to see a current and valid photo ID of the applicant and in most cases, you will be asked to provide a photocopy for their records.
- Assets. Any real property you own, plus cars, savings and investment accounts.
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