Have you ever sat down and tried to count the number of ways you could borrow money? Trust us, there is a bunch. To illustrate this point here is a list of 10 ways you could borrow money and it may not even be all-inclusive.
- Personal loans
- Credit unions
- 3. 0% on new purchase credit cards
- 0 per cent on balance transfer credit cards
- Low interest rate credit cards.
- Payday loans
- Family and friends
- Social lenders
- Remortgaging or refis
- Secured loans
One you might not think of
A type of loan that isn’t on this list, that you might not think of and that’s not used very often is a personal line of credit. Businesses have been using lines of credit for years but this has never really seemed to catch on with individuals. The reason for this could be the fact that banks don’t usually advertise lines of credit so that potential borrowers rarely ask about them. But a personal line of credit can be a good option for borrowing money. Here are some of the basics you should understand about them.
What is a personal line of credit?
The simplest explanation of a line of credit is that it’s a flexible loan that you get from a financial institution or a bank. It’s kind of like a credit card in that it gives you access to a certain amount of money that you can use how and when you wish to use it. You may repay the money immediately or over some specified period of time. You will be charged interest as soon as you borrow the money and, of course, the financial institution must first approve you. It will base your line of credit on your relationship with it and your credit rating.
Why a personal line of credit can be useful
Banks are not very interested these days in giving out one-time unsecured loans. In addition, it is not very economical for you to take out a loan every couple of months, repay it and then take out another loan. Both these issues are answered by lines of credit as they make a specific amount of money available when and if you need it.
What they are not intended for
As a general rule, you should not use a line of credit to make a one-time purchase such as a car or house. That’s what auto loans and mortgages are for. The common way that a personal line of credit is used is to smooth out the quirks of monthly expenses and income. They can be particularly helpful to those who do not have fixed salaries. People who work on contracts and others who have unpredictable incomes could use a personal line of credit to tide them over through periods of unemployment until they once again have weekly or monthly incomes. A personal line of credit can be cheaper than using a credit card as it would likely have a lower interest rate. Plus, it would offer a more flexible repayment schedule. In addition, a line of credit can be helpful in situations such as funding estimated quarterly tax payments. This can be especially true when there is a difference between the timing of the “accounting profit” and when you actually receive the cash.
Overdraft protection plans
These plans are actually also a type of a personal line of credit. As a rule, most banks are not especially eager to explain this as a loan product. And of course, not all of these overdraft plans are backed up by personal lines of credit. But many are. This is another case where a personal line of credit could be a source for emergency funds on a quick, as-needed basis.
The downside of personal lines of credit
A personal line of credit has the same negatives as any other form of borrowing money. If you do tap that line of credit, you must pay back the money. It’s not free money. And you will have to qualify for the line of credit just as you would for any other loan. This means that if you have a poor credit record, you might not qualify.
One of the other advantages of a line of credit is that it is not a secured loan, meaning that they are not tied to an asset such as equity in your home or some other valuable property. Plus, they are certainly cheaper than loans from payday lenders or pawnshops. However, they are usually more expensive than traditional types of loans such as an auto loan or mortgage. Plus, the interest on a line of credit is usually not tax-deductible.
The net/net
A personal line of credit is neither good nor bad. It’s like any financial product. It’s good or bad only in terms of how you would use it. If you borrow excessively against a line of credit you could get into financial trouble just as you would if you overspent on credit cards. However, a personal line of credit can be a good solution for month-to-month financial vagaries or for handling a complicated transaction such as a wedding or a home remodel. But just like with any loan, if you decide to take out a personal line of credit, make sure you pay special attention to the terms, including the interest, fees and repayment schedule. Also, don’t be afraid to do some comparison-shopping and do ask a lot of questions before you sign on the dotted line.
Watch this video to learn more about how you could use a personal line of credit.
National Debt Relief helps resolve debt for people nationwide who owe $10k+ in unsecured debt. Our experts negotiate with creditors so that clients pay only a fraction of what they owe and can become debt free in as little as 24-48 months. 
