What Is a Line of Credit?
A line of credit is an amount of money that a credit union agrees to lend you. You are not required to take possession of the entire sum. Instead, you will be able to make withdrawals when you need to until the entire amount that you were approved to borrow is gone. You will only need to pay interest on the amount that you withdraw.
Line of credit loans provide you with an amount of money at the moment you need it. It is a great financial product for those unexpected expenses that come up when you are least prepared to address them. For example, your car breaks down and needs very expensive repairs. Rather than place this expense on your credit cards, you will be able to withdraw the money from your line of credit.
How Does the Interest Work?
You will only need to pay interest on the amount of money that you withdraw. You will be required to repay the principal and the interest, but after you have done this, the money will be available to you to borrow again. Every time you need a sum of money to pay an unexpected expense, you can withdraw it and pay it back, and you can do this several times. You only need to make sure that you adhere to the terms and conditions of your loan. This means that you must pay back what you borrow in full, and you must pay it back on or before the due date.
How Does a Line of Credit Work?
We can make this easier to explain by comparing a traditional loan to a line of credit. With a traditional loan, you will receive the entire amount in one lump sum, but you will be required to begin repaying this loan right away. Line of credit loans provide you with an amount of money that you can access when you need it, and you don’t have to begin paying interest until you do.
To qualify for a line of credit in Kirbyville, Silsbee, Buna, Kountze and Evadale Texas, you don’t need to offer anything to the credit union as collateral. If you were to apply for a traditional loan, you would be required to offer your home as collateral for the loan, and this puts your house at risk.
Your credit scores will be considered when your lender determines what your interest rate will be. For example, if you have good or great credit scores, your lender will be willing to offer you the lowest annual percentage rates.
The Draw Period
The draw period is the amount of time that you will have to withdraw money from your approved line of credit. This draw period can last for years. The credit union may give you a special checkbook for the purpose of using your funds, or your lender will offer you a credit card. Your credit union may also deposit the money into your checking account when you need it.
After you withdraw a sum of money, the interest begins to accrue. You are going to need to begin making the minimum payments, or you can pay more. If you only make the minimum payments, it will take you longer to repay this loan and cost you more in interest. These payments will be returned to your line of credit loans as you repay them. At the end of the draw period, you will be in your repayment period and need to repay the remaining balance.
When Is This Type of Loan a Good Choice?
If you would like to consolidate several debts, this is a good loan for this purpose. You will reduce the number of bills you are paying to one and make lower monthly payments because you will have a lower percentage rate. It doesn’t require you to offer anything as collateral. It is also good for large expenses that you must make, such as home repairs or college expenses. You may even be able to deduct your payments from your tax returns.
If you are interested in becoming a member of Eastex Credit Union in Evadale, Silsbee, Kountze, Buna and Kirbyville, contact us today!