| A Line of Credit - What is It? |
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Many people do not have a good understanding of what a line of credit is, but it is a very important thing to understand. When you are doing any type of financial planning, contemplating a loan or have any major financial decision to make, an understanding of a line of credit is very helpful.
Many people do not have a good understanding of what a line of credit is, but it is a very important thing to understand. When you are doing any type of financial planning, contemplating a loan or have any major financial decision to make, an understanding of a line of credit is very helpful. This article explains when you will use a loan and when you will use a line of credit. To give the technical definition, a loan is money lent to you for a certain period of time with a fixed interest rate and a fixed monthly payment. You know when you will have the loan paid off at the time that you take out the loan and your paperwork will reflect this fact. Your mortgage is a good example of a loan. Another example is a car. You are able to choose how long you want the loan to go along with the payment you want by talking with your local banker or the car dealership. An important point to remember is that the shorter the loan duration will equal less interest paid over the life of the loan. When you think about your monthly payment, there is a certain amount which goes towards principal and a certain amount goes towards interest. At the outset, the majority of the monthly payment you will be applied to interest. As time goes by this changes and you begin to pay more towards the principle each month. A line of credit works differently in that it is an amount of money available to you to use when and as you see fit. You may set up a line of credit without having a specific purpose for the money at the time. Interest rates for lines of credit are figured based on prime, which is established by the Federal Reserve. Knowing the difference between a line of credit and a loan is helpful in your financial planning. It will help you to make good decisions as to which is best to choose to handle your financial needs. Author: Are you looking for information about how to pay off credit cards faster? You'll find plenty of helpful tips & advice on the Debtopedia website. Visit http://www.debtopedia.com for your free copy of my special report "Secrets Of Credit Card Debt" |
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