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    Home » What is a Personal Line of Credit? Everything You Need to Know
    Are there any restrictions on how I can use my personal line of credit?
    Personal Loans
    FinTopiAuthorBy FinTopiAuthorMarch 31, 2023Updated:June 14, 2023No Comments6 Mins Read

    What is a Personal Line of Credit? Everything You Need to Know

    A personal line of credit is a flexible form of borrowing. This provides you with access to funds as you need them. Unlike a traditional loan, a personal line of credit allows you to borrow money on an ongoing basis. In this case, you are up to a certain limit only, and you only need to pay interest on the amount you use.

    In this blog, we’ll cover everything you need to know about personal lines of credit, including how they work, their benefits and drawbacks, and tips for using them responsibly.

    Table of Contents

    • What is a Personal Line of Credit?
    • The Pros & Cons — Should You Opt for an Unsecured or Secured PLOC?
    • Personal Line of Credit Interest Rates – How to Get Low Rates on Your Next Loan
    • Conclusion
    • FAQs

    What is a Personal Line of Credit?

    A PLOC is a loan that gives borrowers access to funds on an as-needed basis. You can draw down on your available balance whenever you need it.

    Consider how much you need to borrow and choose a PLOC with a credit limit that can accommodate your needs. Ultimately, look for a PLOC with a low interest rate, as this will reduce the cost of borrowing over time.

    Some popular options include Wells Fargo’s Personal Loan and Bank of America’s Preferred Rewards Program. They offer lower rates based on account balances.

    Meanwhile, many banks offer reliable and affordable PLOCs. This includes Chase Bank, Citibank, USAA Federal Savings Bank, and the like. It’s important to compare terms like annual percentage rate and fees charged by each lender before making any financial decision.

    The Pros & Cons — Should You Opt for an Unsecured or Secured PLOC?

    A PLOC can be secured or unsecured, and choosing between the two can depend on various factors. With that stated, here are the pros and cons of both: 

    Secured PLOC pros:

    • Lower interest rates. Secured PLOCs typically have lower interest rates than unsecured PLOCs. This is due to the backing of collateral, such as a savings account, a certificate of deposit, or even your home.
    • Higher credit limit. With collateral, the lender becomes more confident in case of a default. In this case, they may be willing to extend a higher credit limit to you.

    Secured PLOC cons:

    • Risk of losing collateral. If you default on a secured PLOC, the lender has the right to seize the collateral. This could be your savings account or even your home. You must be confident in your ability to repay the loan before taking out a secured PLOC.
    • Longer processing time. Since the lender has to evaluate the collateral before approving the loan, its processing time may be longer.

    Unsecured PLOC pros:

    • No collateral required. You don’t need to put up collateral to get an unsecured PLOC. This means you don’t have to risk losing assets if you default.
    • Faster processing time. Since the lender doesn’t have to evaluate collateral, its processing time may be quicker than a secured PLOC.

    Unsecured PLOC cons:

    • Higher interest rates. Unsecured PLOCs typically have higher interest rates than secured PLOCs. This is because the lender has no collateral to fall back on in case of default.
    • Lower credit limit. Since the lender has no collateral to fall back on, they may be less willing to extend a high credit limit to you.

    To wrap up, the choice between a secured and unsecured PLOC depends on your financial situation and risk tolerance. If you have collateral to put up and want a lower interest rate or higher credit limit, a secured PLOC may be a good option. Meanwhile, if you don’t want to risk losing assets or have a shorter processing time, an unsecured PLOC may be a better choice.

    Personal Line of Credit Interest Rates – How to Get Low Rates on Your Next Loan

    PLOC interest rates can vary depending on the lender, your credit history, income, and other factors. Nonetheless, there are ways to secure the bag and get a lower interest rate.

    Note that your credit score is one of the most critical factors that lenders consider when determining your interest rate. If your credit score is low, work on improving it by paying your bills on time. Keep your credit utilization low and dispute any errors on your credit report.

    In addition, some lenders offer secured PLOCs, which are backed by collateral such as a savings account or a certificate of deposit. Secured PLOCs may have lower interest rates than unsecured, as the lender has collateral to fall back on if you default.

    Ultimately, having a stable income can increase your chances of getting approved with a lower interest rate. This is because, in the eyes of the lender, there is less risk. In this case, you may also consider a shorter repayment term to avoid dreading when paying.

    Conclusion

    Everything accounted for, a personal line of credit can be a valuable financial tool for those who need flexibility in their borrowing. It offers a revolving credit line that can be used as needed, with interest charged only on the amount you borrowed. However, it’s important to use it wisely and not rely on it as a long-term solution for financial difficulties.

    Ensure to read the terms and conditions carefully, compare different lenders, and only borrow what you can afford to pay back. With responsible use, a personal line of credit can help you manage your finances better and achieve your financial goals.

    FAQs

    Q: Can I get approved for a personal line of credit even if I have bad credit?

    A: There are some lenders who specialize in offering personal lines of credit to people with bad credit. However, they may come with higher interest rates and fees. Alternatively, you can consider improving your credit score by paying off your debts on time.

    Q: Are there any restrictions on how I can use my personal line of credit?

    A: There may be some limitations on using the funds for business or investment purposes, illegal activities, or any activity that violates the lender’s policies or regulations. Additionally, you may be required to use the funds within a certain time frame only.

    Q: Do I need collateral to obtain approval when obtaining a personal line of credit?

    A: In most cases, you do not need collateral, as it is an unsecured form of credit. Meanwhile, some lenders may require collateral or a co-signer if you have a low credit score or unstable financial standing.

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    FinTopiAuthor
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    The FinTopiAuthor, who prefers to remain anonymous for now due to privacy reasons, has a bachelor’s degree in finance and over 10 years of experience in financial planning and bank loans. For the last 3 years, they’ve been working as a freelance copywriter in the niche of financial products, investing, and money lending, with the special attention to pros and cons of different loan types. Besides an interest in financial topics, they’re keen on traveling and various adventures.

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    Table of Contents

    Table of Contents

    • What is a Personal Line of Credit?
    • The Pros & Cons — Should You Opt for an Unsecured or Secured PLOC?
    • Personal Line of Credit Interest Rates – How to Get Low Rates on Your Next Loan
    • Conclusion
    • FAQs

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