Do You Need A Line Of Credit (LOC)? Pros & Cons Of Taking One

The Line Of Credit (LOC) is one of the most common means of instant cash loans. In general, we acknowledge at least one letter in our mailbox which conveys the message regarding the “approval guaranteed” line of credit for thousands of dollars, Many banks and organizations do this.

But, coming to the facts, Do I need the money? No. Not right now, anyway. But what if I need it later? Yes! that’s what the banks say. It’s not for now. It’s for later.

What is LOC?

line of credit

Line Of Credit is more or less the similar to the credit card category of loan which millions of people opt to meet the monthly needs.

One can describe LOC as flexible funds which can be used for pretty much every financial requirement like home renovations, vehicle purchases, daily spending or consolidating debt. There are certain pros when it comes to LOC. Unlike the credit card loans, LOC has only a considerable amount of interest rate. This could be very much suggested for those who have credit cards with the high-interest rates.

In case of LOC, the credit amounts range from a minimum of $500 to mammoth $200,000 to which you have unlimited access. These loans are offered to those who maintain a good credit score and factually, such people seldom opt the LOC. In terms of payments, the procedure is pretty similar to credit cards. LOC should be paid off monthly. You can pay off the amount you are capable of if you are not sophisticated. But, if this goes up for months, then you have to deal with the gigantic interest at the end. Sometimes people with bad credit score will also get a LOC but the bad credit loans are rarely available.

With these flexible factors, many opt for a LOC and get stuck when the date of payment comes. So, in order to avoid such circumstances, you must ask yourself these questions before considering a LOC. Do proper research and find out the best place for Line of Credit.

  1. In the first place, why do I need this money?
  2. Where am I going to use it? If a possibility of emergency comes into your mind, then question yourself what is emergency and is it really necessary!
  3. Now, after all the analysis, you will get a conclusion and question yourself once again ‘Do I really need a LOC?
  4. Find out the interest rates using any line of credit loan calculator on the Internet. Draw a conclusion about how much time it will take for you to pay it back.

The Pros & Cons Of Line Of Credit:

line of credit calculator

Pros

  1. A line of credit will help you build a decent credit, but you must have a good credit in the first place (to get a LOC).
  2. One can pay off the credit cards at a considerably lower interest rate (see Cons).
  3. You should pay interest only on the amount that is used.
  4. May be tax-deductible (certain conditions apply).
  5. Can use unlimited funds.

Cons

  1. LOC have variable interest rates which means that the interest rates change for every month.
  2. Though you can pay off credit cards at a lower rate, people often end up maxing those credit cards out again, which only creates further financial stress.
  3. Just as you have unlimited access to the funds through online, on your mobile phone, through an ATM – all 24/7. For those with bad credit, this is a nightmare.
  4. The idea of access to the $10,000 every day itself is quite luring. A LOC could often lead to temptations. reconsider.

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