« Back to News & Blog

How Do Personal Lines of Credit Work?

A couple discusses how personal lines of credit work with a credit union representative.

A personal line of credit works by offering a flexible way to borrow money. Much like a credit card, it lets you access funds only as needed and comes with more favorable terms. Enjoy perks like a larger credit limit and no monthly fees here at Jeanne D’Arc Credit Union!

If you need to borrow money regularly but can’t pin down a total loan amount you need, a personal line of credit could be useful for large expenses such as medical bills or a home improvement project. Read on as we share a guide to help you better understand the convenience of this borrowing option.

How Does a Personal Line of Credit Work?

When you apply for a credit line, you’re approved to borrow up to a certain amount. Your credit score, credit history, and income are all key factors in determining this figure. You decide how much you withdraw and when you’ll use all of it or some of it. As you borrow from your credit line, you pay back the loan along the way. As you pay down the principal, that amount becomes available for you to borrow again.

Start a free application with us where you could be approved for up to $10,000. Your approved funds can then be drawn from within your personal line of credit. During your draw period, you can borrow as needed and transfer the funds into your checking account to withdraw as cash. You will only pay interest on the amount you borrow without any prepayment penalties!

Uses for Personal Line of Credit

Personal lines of credit can be used for just about anything!

Home improvement projects are one of the most popular uses but there are other situations where a personal line of credit is worth considering. You can use it to consolidate debt, pay for college or a wedding, or even a special vacation.

You can use the line of credit for emergencies or to help you manage cash flow. Maybe you have irregular income from being self-employed or your income is more commission-based, you can use money from a line of credit to help meet any gaps during the months you have less income. A credit line can also be used as overdraft protection.

Advantages of Using a Personal Line of Credit

We mentioned previously how interest is only paid on funds borrowed with a personal line of credit. This makes a line of credit a good choice for expenses that occur over time so you aren’t paying interest on the money you aren’t using. Another main advantage is its flexibility; funds can be drawn and paid off as many times as you need.

Unlike mortgages and auto loans, there are fewer restrictions on how you use a personal line of credit. Don’t forget personal credit lines are almost always unsecured loans. This type of loan doesn’t require collateral, so you won’t need a car or house to qualify.

Understanding Repayment

It’s important to understand how taking out a personal line of credit works when it comes to the payback process. It is different from most other loans or credit cards.

Repayment periods for a personal line of credit are not defined and might be longer than they would be when compared to more traditional loans. Be sure to ask questions about your repayment schedule and if there are prepayment penalties.

As with all credit-related options, a personal line of credit does require a good repayment plan to be in place. You wouldn’t want a missed payment or failure to repay to negatively impact your credit score.

Personal Lines of Credit With Jeanne D’Arc Credit Union

Sometimes you need a little extra. A personal line of credit could be for you if you want to borrow money incrementally for home improvement projects, vacations, weddings, emergencies, or to consolidate debt. Or something else entirely!

Personal lines of credit with Jeanne D’Arc Credit Union can be a flexible and smart way to borrow money when you aren’t sure exactly when you might need it. Click below to learn more about how our personal lines of credit work!

Personal Line of Credit