Financial emergencies can blindside you and your budget. When your car breaks down, your air conditioner stops working, or you need to purchase a prescription, having access to quick and flexible funding options can be a game-changer.
While personal loans have traditionally been a popular choice, there’s another financial tool that can offer even greater advantages: a line of credit. Here are five compelling reasons why a line of credit might be the ideal solution for you when faced with an emergency.
1. Flexibility to Borrow as Needed
When facing an emergency, it’s often challenging to predict the exact amount of funds you’ll need. Personal loans typically provide a lump sum, which may lead to borrowing more than necessary.
If you’re approved for a line of credit lender like Fora, you will receive a credit limit that marks the maximum amount you borrow. However, you don’t have to use that entire amount. If you have a Fora Credit account, you have the flexibility to borrow only the amount you need up to your approved credit limit. This feature ensures you’re not burdened with unnecessary debt.
2. Pay Interest Only on What You Borrow
When you take out a personal loan, you will pay interest on the entire principal from day one. Lenders usually bundle interest into each scheduled payment.
With a line of credit, you pay interest only on the funds you withdraw for as long as they tie up your balance. This means you can have the line of credit available for emergencies without incurring interest charges until you actually use it. It’s like having a financial safety net, ready to support you when needed without worrying about accruing interest when it’s not in use.
3. Revolving Credit: Reuse and Repay
A line of credit is a revolving form of credit. Once you repay the borrowed amount, the funds become available again for future emergencies.
Its revolving nature provides ongoing access to funds, giving you peace of mind in case multiple financial emergencies or unexpected expenses arrive in future. It eliminates the need to reapply for a new loan every time you require additional funds, saving you time and effort.
4. Fewer Fees
While every lender is different, most financial institutions only apply interest and finance charges to the amount you borrow. They won’t charge any application, origination, late, annual, or draw fees. Without these extra charges, you can reduce the overall cost of borrowing.
5. Build Your Credit Score
Maintaining a line of credit and using it responsibly might positively impact your credit score. Timely payments and responsible borrowing behaviour demonstrate financial discipline and can improve your creditworthiness over time.
A higher credit score can open doors to better financial opportunities in the future, such as obtaining larger loans or securing favorable interest rates on mortgages and credit cards. By choosing a line of credit, you not only address your current emergency but also set yourself up for a stronger financial future.
Is a Line of Credit Right for You?
Choosing a line of credit over a personal loan offers numerous benefits, including the flexibility to borrow as needed, paying interest only on what you withdraw, revolving credit for ongoing emergencies, lower interest rates and fees, and the opportunity to build your credit score. Consider these advantages when you’re looking for financial assistance in an emergency. They might tip the scales towards a line of credit over a personal loan.
