While there may be benefits to having a Line of Credit [e.g. you have flexibility in how and when you drawdown, with unlimited drawdowns], there are also other factors that need to be considered.
Flexible revolving credit facility, similar to a credit card. Generally with a lower interest rate.
- Funds are readily available for any personal purpose or investment.
- Flexibility in use of funds: ATM, online bank transfers, branch.
- No requirement to make principal repayments.
- Additional repayments can be made at any time, including having salary paid to the account.
- While interest rate may be higher than a standard home loan, the interest rate is generally lower than Personal Loans or Credit Cards.
- The Interest Rate is a variable rate which is subject to market fluctuations.
- The Interest Rate may be higher than other variable rate loans.
- Interest is usually higher than a standard variable rate loan.
- Ease of spending, without discipline, may see the debt increase up to its limit and remain as hard-core debt.
- No requirement to make principal repayments may mean you never pay the loan off.
- Higher cost overall if there are no reductions to the principle.
- Tax advice should be sought if using a Line of Credit for investment as any subsequent credit to the Line of Credit is generally accounted against oldest debt first.
- Most lenders will only consider where the client can demonstrate good financial discipline, a good credit history and stable income.
- Generally you would be required to at least cover the amount of interest and charges each month.
- The funder can ‘call in’ the facility with full repayment required with short notice.