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A bank personal line of credit is a funding pool that works like a cross between a credit card and a traditional loan. This lending instrument may be secured or unsecured and can have some advantages over other types of funding.
How a Bank Personal Line of Credit Works
Like a credit card, a personal line of credit will give a recipient access to a set amount of money when it is desired. Also like a credit card, the recipient will be able to use as much or as little of the available money as is desired. In most cases, lines of credit enable the direct withdrawal of cash funds or the use of special checks to access the money.
When a line of credit is used, bank fees and interest charges will ensue. When the money is untouched, fees are not generally charged. Some lines of funding revolve like credit cards, but others do not.
Advantages of Lines of Credit
A personal line of credit can have some advantages over cards or traditional loans. While the exact terms will vary, the benefits can include such things as:
- a larger funding pool
- lower interest rates
- access to cash
- flexibility in use
A bank personal line of credit can be offered secured or unsecured. Secured accounts are generally backed by a personal asset, such as equity in a home. Unsecured lines are granted based on personal creditworthiness.
