Heres one that comes to mind: line of credit.
What Is a Line of Credit, and How Does It Work?
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Lines of credit fall into two main categories: secured and unsecured.
Secured Line of Credit
This simply means your loan is collateralized.
Translated: You offer up personal property to guarantee the repayment of the money youve borrowed.
A lot of people who are homeowners will apply for a line of credit, McClary says.
(No pun intended…
Thanks to the collateral, McClary points out, secured lines of credit typically come with lower interest rates.
You might feel less accountable without your collateralized property.
Hows a Line of Credit Different From a Loan or Credit Card?
When you apply for a loan, youre applying for a fixed sum.
With a line of credit, on the other hand, theres more flexibility.
Youll simply borrow against it.
Then, youre not stuck paying off an entire loan you pay off only what youve used.
With both loans and lines of credit, though, youll want to shop around and compare rates.
For loans, an online loan-comparison marketplace can help you search for lenders offering the best rates.
For both, your rates will depend on your creditworthiness.
The big difference is [a credit card] is designed for maximum convenience.
So youre getting a card… and you take your line of credit with you.
Both methods of borrowing have limits, but neitherrequiresyou to borrow a certain amount.
The convenience and ease of swiping a card poses a higher risk to the lender.
The line of credit interest rate fromWells Fargo, was 9.5% to 21%.
Now youve got the basics down.
But only if youre managing your debt responsibly.
If youre curious about your credit score, you cancheck it for free online.
Tap into your credit report to break down whats going well (and what isnt).
Taking care of your credit score, like McClary said, can help increase your future purchasing power.
Keep your spending in line.
(Get it?)
Carson Kohler ([email protected]) is a staff writer at The Penny Hoarder.
She apologizes for that last pun.
Probably not as good as youd like.
It always seems like an uphill battle to build (and keep) a decent amount in savings.
But what if your car breaks down, or you have a sudden medical bill?
Ask one of these companies to help…
