What is a Personal Line of Credit, and How Can It Help You?

A family of three walking through an airport. The little girl is cute with a yellow dress and she is holding a passport.

There are plenty of reasons that you may need some extra cash ASAP—and a personal line of credit can help you get it while also potentially helping your credit score.

A personal line of credit from GNCU is the perfect option to help you consolidate your debt, protect your account from overdrafts, or lend a hand with unexpected life events, like a sudden auto repair or pet illness.

With a personal line of credit, you get instant access to your available credit when you need it. 

How A Personal Line Of Credit Can Help You Get The Financial Flexibility You Need

What are the main differences between a personal line of credit and a fixed-amount personal loan? Personal lines of credit are different from fixed amount personal loans in a few ways.

  • Once you repay the total amount of a personal loan, the loan is closed. If you need money again, you’ll have to reapply in the future. However, with a personal line of credit, your available balance is renewed upon every payment received, like a credit card account.
  • With a personal line of credit, you only use the amount of money you need and only pay interest on the amount you’ve used.
  • Interest rates for personal lines of credit are often a few percentage points higher than a fixed-amount personal loan because personal lines of credit are not tied to the equity in your home or some other valuable property. However, they’re almost always many points below the average interest rate for credit cards and absolutely below the 30% APR that comes with many short-term loans from predatory organizations.
  • A personal line of credit can be connected directly to your checking account and act as supercharged overdraft protection. For this reason, many of our members enjoy the added protection and security that having a line of credit offers. They never have to worry about overdrawing their accounts and always know that there’s a safety net to protect them.
  • Because it’s a revolving line of credit (like a credit card but with a lower interest rate), a personal line of credit can help build your credit score. When used responsibly, an open line of credit can reflect positively on your credit score by demonstrating the longevity of activity and usage ratio.

When is a good time to use a personal line of credit?

Lines of credit aren’t meant to be used for one-time purchases such as houses or cars—that’s what mortgages and auto loans are for. Instead, a personal line of credit is a good fit for the times when you have a long-term expense or financial need without a fixed cost.

For example, let’s say you’re having problems with your vehicle. You aren’t quite sure what the problem is, so you take it in for an inspection with your mechanic. Unfortunately, your mechanic isn’t quite sure what it is either. The mechanic proposes several potential solutions, and you decide to try the first and cheapest of them all. Who knows if this is the perfect fix, or if you’ll be back in the shop next week?

A personal line of credit may also help you cover the cost of a medical procedure when you don’t know exactly how much the procedure will cost or how long it will take for you to recover and get back to work. It can also help cover the veterinary bills for a pet.

Another time that a personal line of credit can be helpful is when you don’t want to tap into other reserves, like investments or retirement accounts. If you’re considering borrowing against a 401k or IRA, there may be an opportunity to consider a line of credit instead.

Who can qualify for a personal line of credit?

Individuals with a strong credit history, credit score, and demonstrated ability to repay their debts are best qualified for a personal line of credit. The better your credit rating, the more likely you are to get a personal line of credit.

How do I choose the right financial institution?

Stories about large commercial banks closing their personal line of credit programs made the news in 2021, which is why we recommend considering a credit union for your financial needs.

At Greater Nevada Credit Union, we’re here to serve our members—it’s our number one priority. We will never put a product out on the market that doesn’t help our members live greater. When we launch new products, we vet every offering and option available to ensure that it will be beneficial. And, if we ever decided to close a product line, it would go through a similar vetting process with our leadership and member-led board.

What else should I know about getting a line of credit?

Don’t be afraid to consider this option! It can give you peace of mind and additional financial flexibility when you need it most.

Ready to see if a personal line of credit is right for you? Click here to learn more about this option and apply online. You can also call us to speak to one of our credit experts, or visit a branch and speak with us in person.