Personal lines of credit
When are personal lines of credit a better idea than loans or credit cards?
Personal lines of credit are perfect for those times when you’re uncertain what your total expenditure will be, for instance home renovation projects. Ask anyone who ever remodeled a kitchen if the projected expenses matched the final costs, and you’ll begin to understand one of the advantages of personal lines of credit over loans.
Personal lines of credit lines of credit allow you the convenience of writing a check or using a bankcard to draw on the account whenever you need it. Personal lines of credit are revolving credit accounts similar to credit cards; as you pay down the balance, you’re replenishing the pot of money you might need later
You make payments only on the portion of the credit limit you’ve used. If you have a $35,000 credit line for a kitchen remodel, but have only spent the first $5,000 of it to take out a wall, your payment is based on the $5,000 expenditure rather than the $35,000 loan.
In contrast, most loans are paid out in a lump sum. That means that if you take out a $35,000 loan, you have to begin paying on the full amount right away whether you’ve spent the money yet or not.
One of the biggest factors in choosing personal lines of credit over credit cards is expense. Personal lines of credit have lower interest rates than credit cards. Because of the lower interest rate, more of the payment goes toward the principal of the lines of credit, unlike credit card payments that can go on seemingly forever. Since the principal gets paid off faster, there is always a greater pot of money to draw from as the project proceeds.
Everyone loves the convenience and lower interest rates, of course, but most people opt for personal lines of credit because of the tax breaks they offer. When personal lines of credit are secured with borrowers’ home equity, the interest paid is tax deductible, just like the interest on mortgage payments. An added bonus: home equity lines of credit have even lower interest rates than unsecured personal lines of credit.
So, let’s see … borrowers take out personal lines of credit; secure the credit with home equity to get the lowest interest rates; write off the interest; use the money to increase the value and enjoyment of their homes; and pay off the debt faster.
Personal lines of credit for home renovations are a pretty sweet deal. Let American Unsecured help you sort through your personal lines of credit options and find the credit line that best suits your situation. American Unsecured is a loan-consulting firm and has helped millions of people find the money they need, and they can help you, too.