Drawbacks To Consider: A Personal Line Of Credit

A personal line of credit is a lending method that allows the borrower to borrow the amount he wants provided that the amount he wishes to draw does not exceed his credit limit set by the lender. This monetary assistance can be secured or unsecured. Secured personal line of credit involves a collateral to secure the loan, while the unsecured line of credit is the opposite. This type of monetary assistance may offer a lot of benefits, but, like any other financing vehicles, it also has its drawbacks.

Personal Line Credit Disadvantages

Before applying, you may want to consider the negative side of a personal line credit. Some drawbacks of this credit process are:

higher interest rates on unsecured loans - Lenders charge higher interest rates on lines of credit which do not have a collateral to secure the loan.

interest rates are variable - Most personal line of credit have variable interest rates which depends on the movement of the prime lending rate. Because it is not fixed, the rates of the amount borrowed are subject to change.

limited borrowing - The Home Equity Line of Credit (HELOC) which is a secured type of personal line of credit has a limited period of borrowing, wherein, the borrower is no longer allowed to obtain another fund unless the previous loan is being paid.

 

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