3 Better Options than Taking Out a Line of Credit

So you need to make a large purchase and you don’t quite have the money — what’s a person with limited funds to do? Taking out a line of credit seems like the obvious option here, but it may not be the best option. Here are three alternatives to taking out a line of credit that could be better on your wallet and your credit score!

1. Take Out a Personal Loan

Taking out a line of credit is a lot more like taking out a credit card than borrowing money. You have a fixed borrowing limit but can take out whatever funds you need. Payment processes work a lot like credit cards, too, but you may lose assets if you are unable to make payments on a secure line of credit. Taking out a personal loan is a great alternative to a line of credit. Personal loans typically have fixed interest and there is no penalty for paying off the loan early. If you are simply in need of funds to make a single large purchase, taking out a personal loan has less potential to damage your credit or get you caught in debt than taking out a line of credit.

2. Consider a Credit Card

While lines of credit function similarly to credit cards, they are vastly different in that many lines of credit require assets to “secure” them. This means that if you are unable to make payments, your property could be taken in a lien. Credit cards are best for making smaller purchases or consolidating small debts.

3. Take Advantage of Home Equity

Home equity rates are considerably better than rates for personal loans, which in turn are better than taking out a line of credit. Refinancing your home or taking out a second mortgage may be good alternative choices to a line of credit because of the lower interest rates. However, it’s important to be aware that failure to make payments could result in the loss of your home.

Be sure that you have considered all alternatives before deciding to take out a personal line of credit — there may be better options out there for you and your finances.

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