Whether you’re looking to replace the family vehicle or wanting to invest in your business, the chances are you don’t exactly have tens of thousands of dollars lying around waiting for you. When this issue arises, there’s typically only a handful of options for you, and one of those is taking out a line of credit.
Though this might seem like an expensive and sometimes even counterintuitive way of buying something for work or home, the process can be quite simple. The fees are even affordable if you know where to look, making a line of credit a suitable option for many.
A personal loan and lines of credit can be obtained quite simply. With that in mind, here’s a few tips to make the process a little easier for you.
Understand the Types of Loans and Lines of Credit
One of the first things to keep in mind is that lenders have segregated loan types based on what the loans are for. This makes it easier for you to choose an interest rate based on the value and the repayment terms of the loan.
Whether it’s a family vehicle, a holiday, something for work or a little extra cash to renovate your home, be sure to look for personal loans or lines of credit that have been designed for this. In some cases, you may even find that home loans or home renovation loans have been designed to only pay out at set terms, to keep your project on track and within the deadline you’ve set.
You have options on the table such as car loans, unsecured loans and general flexiloans that work best depending on the situation you’re in.
Understand When a Line of Credit is Actually Useful
When it comes to using a line of credit for business, you’re going to want to make sure that this loan you’re considering is actually going to be useful.
You don’t want to find that the loan isn’t quite large enough and you need to repay it and take out another in a month or two. This can become outlandishly expensive and could dissolve your business’s revenue and bottom line if not kept in check.
In order to stop these issues from happening, it’s always a good idea to do plenty of research and analyze the size of the line of credit you need, and work to ensure that it’s going to cover exactly what you need it to.
From this point, you will be better able to move forward with taking out this line of credit. With that in mind, for more information read this guide on business finance to better assist you in determining your need for a line of credit.
Other Types of Borrowing to Consider
Though credit cards, lines of credit, personal loans and so on are all financial products, it’s important to consider other types of lending before you really dig into a line of credit.
When taking out a line of credit, you can often secure these loans with a real piece of property or an asset, which will be absorbed should you not be able to repay this line of credit. However, credit cards, for example, are a little more flexible. Though they have a set borrowing limit, they are more flexible in your ways to pay and how you can use them.
However, as we mentioned above, it’s always good to consider the fees and rates associated and compare between a credit card and a line of credit.
Understanding When to Use a Line of Credit
To simply explain a line of credit, this is a financial product that provides you cash when you need it—whether it be for an emergency at work, or just about anything else, the cash will be available to you at a set amount and no more.
A few situations in which you might want to consider a line of credit is to pay off a debt that has built up and you are at risk of not being able to pay, or need to pay down quickly in order to take out new loans. Another situation is paying off obligatory workplace expenses that keep the lights on, which means you’re going to be worse off without this line of credit.
It’s good to keep in mind that when you need a longer period to pay off your line of credit, you’ll be in good hands given that the “draw period” could be a year or even longer, which means you’re not entirely obligated to begin paying off large sums of the loan. This gives you time to balance your bottom line and get things back in order before you’re required to begin handing back your loan amount.
Getting a Line of Credit
To end, let’s go over some of the things you’ll need to get your line of credit.
- A great credit score is always a starting point, and you’ll often need to have an incredible track record financially in order to land a line of credit.
- Be sure to compare as many lenders as possible prior to requesting your line of credit, as you will find that there are some profound discrepancies in the APRs or interest rates on offer.
- Compile your financial, employment and business documentation in preparation for your loan request to be assessed. This will make the process a lot smoother for both parties.
- Fill out your application once you’ve been approved and triple check that your loan amount and APR are in the green.
Have you ever gotten a line of credit for a family, home or business expense? What tips would you share?