If you are looking for a way to regularly take out short-term loans, a personal line of credit could be the answer.
This is a revolving credit line where your lender gives you cash when you request it.
Setting up a personal line of credit takes a little time, but if you’re looking for a flexible way to borrow money without a long loan application, this could be useful financing to have in place.
How do you get a personal line of credit?
Personal lines of credit are offered by banks and credit unions. To qualify for a personal line of credit, you typically need to have a bank account with the lender.
You also usually need a good credit score, as a personal line of credit is only backed up by your credit rating. It is not like a home equity line of credit, which needs to be backed up by your house as collateral.
How do you get money from a personal line of credit?
If you are approved for a personal line of credit, the lender will tell you the maximum amount you can borrow.
For example, your line of credit might be $10,000. In this case, you could borrow any amount up to a maximum of $10,000.
When you request money, the lender will deposit the funds into your bank account. The lender will also set up a payment schedule for the loan.
Once you pay back a loan, you can borrow the money again.
“At any point, you can borrow
more money off your personal line.”
Fees for a personal line of credit:
To keep a personal line of credit open, you usually need to pay a small annual fee.
For example, Wells Fargo charges a $25 annual fee for a personal line of credit. When you borrow money off your personal line of credit, the bank will also charge interest on the borrowed amount until you pay back the loan.
You do not owe interest on your personal line of credit when you are not using it. Interest only applies when you borrow money.
The interest rate on a personal line of credit will be higher than the rate on a home equity line of credit. These loans are riskier because they are not back up by collateral like your house.
Photo source: five-starbank.com.