Emergency Line Of Credit Vs. Traditional Loan

Emergencies come and go in life, and some require more cash than you might have on hand

. In these situations, emergency loans might seem like the best choice to cover the bills in a flash.

However, there is an additional option many don't consider. An emergency line of credit offers flexibility in providing emergency funds when you need them, without the need to reapply for loans every time a cash crunch arises. Consider these facts on what an emergency line of credit is and when it might be worth considering one.

What is a Line of Credit?

An emergency line of credit differs from a traditional loan in the way it is set up and the way it is accessed. Applicants complete an application just once, and the lending company approves the applicant for a particular credit line based on income level, credit history and other possible variables. Once you are approved for your credit line, you can access your account any time you need money in a hurry. The money borrowed can either be paid back in minimum monthly payments or in full at any time without penalty.

What is an Emergency Credit Line?

There are different types of lines of credit, depending on your situation and the purpose of the loan. Some banks offer lines of credit with checking accounts, so customers can write checks without worry that funds won't be in the account to cover them. Homeowners can get home equity lines of credit that use their home as collateral for the loan amount. These credit lines are often used to make home improvements, but can be utilized for other reasons as well.

Individuals apply for an emergency line of credit when they need fast cash in a hurry to pay for unexpected car repairs or replace a major appliance that breaks down. These loans usually don't require any sort of collateral to secure them, and many can even be obtained with less than stellar credit. Approval may be granted nearly instantaneously, and the funds can appear in the applicant's checking account within 24-48 hours. Once the funds are available, the individual can access his credit line as needed to cover unexpected bills when they arise.

Payment Options

Unlike a traditional loan, an emergency line of credit may be more flexible in terms of payment options. First, account holders can often pay back the used portion of the credit line in full any time they like without a prepayment penalty. Individuals can also opt to make minimum monthly payments that typically include a portion of the principal balance, as well as an interest charge. This payment method usually results in higher finance charges and should be discouraged whenever possible.

An emergency line of credit offers more freedom and flexibility than a traditional loan. Cash is available quickly and can be paid back in the way that is most convenient to the individual.

by: Janet Gaither

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