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Factors to Consider When Choosing Personal Line of Credit


loan moneyA line of credit refers to a credit facility extended by a financial or lending institution to a customer, which allows the customer to access the funds whenever he or she needs to. The line of credit can take a variety of forms, including a demand loan, overdraft limit, term loan, special purpose, and discounts, among many others.

Secured Vs. Unsecured Credit Lines

Generally, credit lines are assumed to be unsecured. However, some require you to use your assets as collateral, depending on the lending institution you choose and the terms and conditions offered. The unsecured lines of credit are generally more attractive. However, they do offer higher interest rates. Your financial situation should help you decide which type will provide you with the most benefits.

Open-End Vs. Closed-End Credit Lines

Open-end credit lines are usually referred to as revolving credit. For such, you have to pay a specified minimum amount of the money owed each month, but preferably pay the entire amount the soonest possible. HELOCs are an excellent example of open-end lines of credit, which base the amount you can borrow on the percentage-appraised value of your home, subtracting the amount you still owe. The closed-end offer fixed amounts for specified purposes, and have to be repaid within a specified period.

Interest Rate

With a personal line of credit, interest will start to accrue from as soon as your loan gets approved. The interest rate is mostly determined by the financing institution you choose, meaning you should shop for the best rates. Ideally, the better the interest rates, the better the loan is for you.


Another top factor to consider when choosing a personal line of credit is the amount. Depending on the amount you need, a personal line of credit may or may not be the best option. For a personal line of credit, you may not be eligible for as much money as other options. However, that does not mean you should go for other options that offer higher limits when you do not necessarily need bigger loans.

Loan Terms

Before you accept the offer issued by the lender, consider all the terms and conditions that come with the loan. Some of the considerations to make regarding terms and conditions include repayment time and repayment schedule, among others.  

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