Lines Of Credit: Beneficial or Not?

2007-03-08 10:33:40

( Financial )



If you are thinking of borrowing money and using your home as a guarantee, you have several choices of loans you can take out: a home equity loan or lines of credit. There is a difference between home equity loans and lines of credit. Although both require you to go through your bank or lending institution to be approved and both uses your house or property as collateral, the similarities end there.

Before you think which type of loan will suit your needs, you have to consider several things. Home equity line of credit is applicable for people who need the cash at unpredictable times with no set amount. A perfect example would be taking out a loan to pay for your kid’s tuition per semester. These lines of credit can offer you lower rates than a home equity loan. And you only pay for the amount that you use.

However, if you only need the cash at one time you may want to go with a home equity loan. A home equity loan opposing to lines of credit has higher rates. This rate is fixed for the whole duration of the loan. You pay a fixed amount per month. You do not have to worry about sudden fluctuations in your interest rate making it easier to do your budget.

An equity line of credit from your bank will give you flexibility with your loan. Your bank provides you with a credit limit and you use the exact amount you need when you need it. You do not even have to go through your bank to do this. Lines of credit usually have penalty fees if you do not use them within a specified amount of time.

Despite the obvious benefits of a line of credit, you are still encouraged to take out a home equity loan. A home equity loan has a locked interest rate with a fixed monthly amortization. It is an useful opportunity to take advantage of a disciplined approach in your loans.


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