We have previously discussed what a credit line is, who lenders offer such a loan, how much is available, and whether a collateral or guarantor is required to obtain such a loan. Now let’s go into a few different but equally important issues that will help you better understand what a credit line is and how to use it in the best and most cost-effective way.
The credit line is available at any time
A credit line is a loan that is very easy to use because you can:
- Take out a cash loan;
- Transfer these funds from one bank account to another;
- Online shopping;
- Pay bills and the like.
Remember, however, that you are taking out a loan – everything you have spent will have to be returned at some point, plus interest!
What are the interest rates on a credit line?
Credit lines generally have lower interest rates than credit cards that operate on a very similar principle. Interest rates will be lower if you decide to borrow at a bank, but if you need funds as soon as possible, you should probably go to a non-bank lender. However, take into account that banks will determine the interest rate individually – bank specialists will assess your monthly income and expenses, your credit history, your ability to repay such loan.
See if it is possible to insure the credit line
A credit line is a quick loan that has obligations even if circumstances change, so loan insurance can be a very good decision. Usually insurance covers such as loss of job, disability, death, but you may be able to cover, for an additional fee, a variety of risks you want to cover. For more information about insurance options, contact your chosen creditor or one of your insurance companies.
Avoid the credit spiral
Always be aware of your limit – knowing that you have a credit line may make you think you can afford more, but that is not the case. The credit line is not your additional income, but the credit obligation that you will have to repay. Even if you want to use your credit line wisely and thoughtfully, for example, to pay off your credit card debt, which has a higher interest rate, you have to keep track of your expenses so that you do not have to use other credit liabilities.
Borrow a credit line responsibly
Once you have made the decision to borrow, seriously consider which creditor you want to go to. Pay attention not only to the interest rate offered by the lender, but also to:
- What are the repayment terms?
- What is the maximum and minimum credit line amount and term;
- Are there any other additional costs;
- What is the creditor’s reputation and the feedback from other clients;
- What is the lender’s policy when the borrower is unable to repay the loan on time.