Have you ever kept quiet because you were worried you would look like an idiot? Seeming incompetent is an all-too-common fear that holds you back from becoming financially savvy. But the only way you can get better at something is if you ask what’s on your mind.
Speaking up is a big step, so here are three of the biggest questions about the line of credit loans (LoCs) to help you get started.
1. How to Open a Line of Credit with Bad Credit?
You’ve heard it before. Someone you know with a bad credit score tried to get a loan in an emergency, and their bank denied their request.
It’s true, some financial institutions won’t extend LoCs to people with low scores, but that doesn’t mean you’re left in the lurch in an emergency.
Other financial institutions are willing to grant funds regardless of your score, for a price. Lenders that provide LoCs to subprime borrowers tend to have higher rates and fees.
The trick to opening a line of credit you can afford is shopping around carefully to ensure you’re getting the best deal for your needs.
2. Why Make More Than the Minimum Payment?
By making the minimum payment, it can feel like you’re getting the best of both worlds. You’re keeping your account in good standing, and you’re paying a small fraction of your outstanding balance.
In a tough month, when money is stretched thin, it’s your get-out-of-jail-free card. When you opt to make the minimum, you have more cash available to put toward other essential bills.
But the online line of credit experts at MoneyKey recommends borrowers don’t rely on the minimum all the time. That’s because it delays paying off debt.
If you have a line of credit through MoneyKey, paying off as much of your balance as possible frees up your limit so that you have more funds available for the next emergency.
To help you manage this, always try to charge purchases you can afford to repay by your next billing statement.
3. Why Choose an LoC over an Installment Loan?
An installment loan is another popular funding option that helps borrowers cover emergency expenses, with or without a good credit score. As a safety net, it plays the same role in your finances as an LoC, so why choose one over the other?
An installment loan is a term loan. This means you’ll have to repay what you borrow, plus fees, by a pre-determined date. Once this day comes, and you pay off what you owe, the account closes. The only way to get more funds in this scenario is by reapplying.
When it comes to an LoC, your account remains open even after you pay your balance down to zero. You’ll still have cash on standby for the next emergency without having to reapply for a line of credit.
This can come in handy if you need cash right away. You won’t have to waste time filling out an application or waiting to hear back if you qualify — you can just withdraw funds against your existing account.
In the financial world, there are no stupid questions. If this article didn’t answer a burning question you have about your LoC, go out there and ask it. Asking questions will help you manage your finances better.