A Line of Credit - What is It?

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A Line of Credit - What is It?

This is a good question and not one in which people understand very well when thinking about their financial lives. When you think about your finances and you think about buying different products in your life, you have the need for a loan at times and you will need for a line of credit at times.

Let's discuss when it is wise to use a line of credit versus when it is better to get a loan.

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. When purchasing a car you obtain a loan. You can discuss with the car dealer or your banker the terms that best fit you and what you want the life of the loan to be. Of course the shorter the life of the loan is the less you will pay back in interest. 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.

Article Source: Credit Card Bad Credit People

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Are you looking for answers about how to pay off credit cards faster? You'll find plenty of helpful tips & advice on the Debtopedia website where you can get a free copy of my special report "Secrets Of Credit Card Debt"

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This is a good question and not one in which people understand very well when thinking about their financial lives. When you think about your finances and you think about buying different products in your life, you have the need for a loan at times and you will need for a line of credit at times. 
Let's discuss when it is wise to use a line of credit versus when it is better to get a loan. 
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. When purchasing a car you obtain a loan. You can discuss with the car dealer or your banker the terms that best fit you and what you want the life of the loan to be. Of course the shorter the life of the loan is the less you will pay back in interest.  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. Article Source: <a href="http://www.allbestarticles.com" target="_blank">Credit Card Bad Credit People</a> About the Author: Are you looking for answers about <a href="http://www.debtopedia.com/credit_card_bill/pay_off_credit_card_bill.php">how to pay off credit cards faster</a>? You'll find plenty of helpful tips & advice on the <a href="http://www.debtopedia.com">Debtopedia</a> website where you can get a free copy of my special report "Secrets Of Credit Card Debt"