The Three Types of Line of Credit

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In today’s article, we will address three types of credit commonly referred to as a line of credit. But first, let’s answer what a line of credit is. In simple terms, a line of credit is any credit you may have that does not have a fixed period of time in which you have to pay it off. There is generally not a minimum monthly payment associated with this and you are also allowed to pay more on the purchased amount to pay down the principal faster if you so desire. The three lines of credit we will be looking at include the following: credit card line of credit, signature line of credit and home equity line of credit loan.

Let’s first take a look at the credit card line of credit. This card can be used for any purchases, but it will come with a higher interest rate. However, one of the positives of possessing a credit card line of credit is that you can receive rewards when using this credit card. Rewards are generally in the form of points earned by means of cash back, plane tickets, or purchasing a new car in the case of GMAC.

The second type of line of credit is commonly referred to as a signature line of credit. The one main difference here from a credit card is that the signature line of credit has a higher limit than a credit card, as well as a lower interest rate (normally). A signature line of credit is generally used for emergency situations or if the individual wants to lower the interest rate they pay on their other credit cards.

The third type of line of credit is the home equity loan line of credit. Because the home equity line of credit loan is a secured loan, it will have the lowest interest rate. This means that if you do not pay back the line of credit, the bank has the protection to take the collateral, which is your home equity, and apply it to the balance owing. However, there can be a tax benefit to using a home equity loan line of credit in the form of a write-off.

Having read through this article about the three types of line of credit, be sure you think about the different ways each of the lines of credit can be used before moving ahead in choosing which type of credit best fits your situation. Whether it is a credit card line of credit, a home equity loan line of credit or simply a signature line of credit, hopefully this article has helped you to determine which type you may want to use.