Are you using the best personal credit tool for your needs? While you might feel a little overwhelmed when it comes to borrowing https://paydayloansohio.net/cities/macedonia/ money, some methods may be a better fit for your unique financial situation than other credit forms.
Navigating these tricky financial decisions isn’t always easy, but we’re here to help. We’ll look at two common kinds of personal credit, a line of credit and installment loan, and the key differences to help you decide what’s right for you.
What Is a Line of Credit?
A line of credit is a type of flexible, revolving account that allows the borrower to access up to the account’s credit limit. The borrower can continue to use up to the credit limit as the balance is repaid on the account. Generally, interest/fees are applied when money is borrowed, as opposed to other types of loans that pay out in lump payments and have fixed repayment schedules.
What Is a Personal Line of Credit Example?
While creditors will vary widely in fees, interest and availability, here’s a sample personal line of credit account for illustrative purposes:
Sarah has a line of credit with a $3,000 credit limit and $775 balance. Currently, that account has $2,225 in available credit. When she wants to draw money, she pays a cash advance fee and/or interest rate set by her creditor. Her minimum monthly payment is also set by her creditor, which is typically based on the account’s outstanding balance.
What Are Some Uses for a Line of Credit?
One of the main features of a line of credit is its flexibility. A line of credit may be useful to have for emergency cash shortages, to supplement an irregular or seasonal income or even to provide peace of mind with easy access to cash, when necessary.