5 Crucial Facts to Consider Before You Apply for a Personal Line of Credit

Are you struggling to afford unexpected expenses? When you’re faced with unexpected, but important expenses, a personal line of credit can be a flexible way to manage costs—especially when used thoughtfully alongside your overall financial strategy. This financial tool utilizes an open-ended loan that can be used flexibly and conveniently.

When considering a financial tool like this, it’s important to do your research and compare your findings to your financial situation. Here at Lanco FCU, we are proud to provide financial services and affordable loan options designed to help our members reach important goals! When you are ready to get started, follow our simple application process to become a member and apply for a personal line of credit.

1. The Differences Between a Personal Line of Credit and a Credit Card

A credit card is a common financial tool that is convenient to use daily. A personal line of credit is similar but has key differences that can make it more beneficial in certain situations. For example, PLOCs can sometimes offer lower interest rates than credit cards, depending on your credit history and financial health, which lenders assess carefully before approval.

However, qualifying for a PLOC can be more challenging, especially if you have a limited or poor credit history.

Another difference is how funds are accessed. With a PLOC, you can withdraw funds directly as cash, giving you flexibility in situations where money is necessary. In contrast, credit cards are typically used directly in transactions, where the card issuer extends credit for the exact amount of the purchase. Each option offers unique flexibility, depending on your needs.

2. The Differences Between a Personal Line of Credit and a Personal Loan

You might hear ‘line of credit’ and think it’s the same as a personal loan, but this isn’t true. A personal line of credit is much more like a credit card, where you have relatively easy access to an amount of credit to use and repay each month. This is unlike a personal loan, in which a lump sum is yours to use and then repay on a fixed schedule.

One of the key differences between personal loans and lines of credit is that a personal loan has a fixed interest rate at the time of application, meaning you know how much will be added on top of the principal each month. A revolving line of credit will have a variable interest rate – sometimes, you might pay much less in interest than when you first applied, sometimes more.

Another major difference is that a personal loan is a lump sum at a given time – you apply for a loan and, assuming you are approved, you receive that sum and begin paying it back. With a PLOC, you apply for a line of credit and have access to a certain amount of funding during the draw period. During this time, you can use the funding as you wish. When the draw period ends, you begin to pay back the credited funding. A PLOC can be a more drawn-out process by comparison.

3. Personal Lines of Credit are Not Tax Deductible

Are you worried about the tax implications of your financial tools? Some forms of loan and financing may be tax deductible – such as a Home Equity Line of Credit (HELOC). This means at the end of the financial year, you would deduct the interest paid on eligible loans from your taxes.

Neither federal nor state taxes allow for deductions of the interest paid on your PLOC. This can be a drawback, but considering the flexibility and lack of collateral, you might think it a worthwhile cost. Ultimately, you should consult a tax advisor to learn more, if this is important to you.4. The Benefits of a Personal Line of Credit

If you still aren’t sure if a personal line of credit would be appropriate for your situation, some benefits might help you make this decision. There are many reasons why a personal line of credit might be a proper financial tool for you to consider. Still, these benefits are often the most important for applicants:

• Easy Access to Money: With a personal line of credit, you can access funding during the draw period via your bank, online, or even with your mobile banking app. This convenience can provide you with freedom and peace of mind.
• No Collateral Required: Unlike a HELOC or similar line of credit, a personal line of credit does not require collateral like a vehicle or home. This can provide a great option for gaining control of your financial situation if you are still developing your assets.

5. The Risks of a Personal Line of Credit

You should always be wary of any group that only presents you with the pros and benefits – a trustworthy financial institution will give you every perspective. To that end, here are some of the most important reasons to consider other financial tools:

• Potentially Higher Interest Rates: In general, a secured loan that uses collateral, such as a HELOC, will carry a lower interest rate than a PLOC. If you have assets that you are willing to use, a secured loan may be a good way to leverage your situation.
• Requires Qualification: Because a PLOC does not require collateral, the lender needs to use your credit history to establish confidence in your ability to pay them back.
• No Grace Period: Unlike some credit cards, a personal line of credit generally begins accruing interest immediately after funds are withdrawn. This means that once you access funds, you will start paying interest right away, so planning for repayment as soon as possible can help you manage costs effectively.

While a personal line of credit has huge benefits, no financial tool is without downsides. It’s critical to weigh both against your monetary needs before you enter any kind of contract or agreement.

Choose Lanco Federal Credit Union for Your Personal Financial Needs!

Does a personal line of credit sound like a valuable financial tool? With a line of credit from Lanco FCU, you may finally be able to afford that new washer and dryer set or get much-needed repairs on your vehicle. There are dozens of reasons to use a personal line of credit, and we want to be the ones who provide you with this tool for success!

If you aren’t already a member, we have an easy process to join our credit union – all we require is that you live or work in Lancaster County, provide some personal information, and maintain a small, $5 minimum deposit. Once you are a member, we can provide you with all of our attractive lending opportunities, and you can enjoy the support of a local community service. Apply for a personal line of credit today!