When it comes to personal finance, people value being able to make decisions and take actions without restrictions or limitations. So, when you need ready cash, isn't it nice to take that cash without conditions, one might ask?
A personal line of credit is unsecured debt that you can use repeatedly as long as you stay within the predetermined limits. This type of credit is very similar to a credit card. Like a credit card, you only pay interest on the amount of money that you have "charged" (that you have borrowed) from the pool of funds available to you. Typically, PLOCs have lower interest rates than credit cards but higher rates than secured loans like home equity lines of credit (HELOCs). You decide when and how much to draw, and you may make payments on the balance whenever you want, as long as you keep the line of credit open and don't allow the balance to go above the limit.
When you need to keep things flexible, a personal line of credit can help—you might even say it truly shines. Here are some established usage scenarios where it’s particularly effective:
Usings a PLOC
Getting a PLOC usually means making sure you have an acceptable credit score, collecting the necessary financial documents, and applying to one's bank or other financial institution. Good credit, as well as a solid income, are the two most significant factors in the underwriting of a PLOC.
Using a personal line of credit properly makes it a very effective financial instrument. It offers great flexibility and convenience but requires skilful management to keep it from blowing up in your face. It is exceedingly helpful for those hoping to straighten out cash flow issues. And it can be approached in a couple of ways that don't involve manipulating income or playing mind games with your creditors. The simplest way is to use it as a de facto overdraft protection. If you run out of money in your checking account, tap the line of credit.