How To Manage A Line Of Credit

If you want to use a line of credit as a car loan there are some important points you need to be aware of

. Whilst every lender has their own peculiar criteria when assessing your eligibility for a car loan, most lines of credit have some common factors. It is no secret that lines of credit are the most flexible loan product on the market, but there are hidden traps for new players.

The difference between a line of credit and a normal personal loan or home loan is that you only pay for what you use. For instance, if your approved line of credit is $50,000 and you purchase a vehicle for $30,000 you only pay interest on $30,000. This means you still have $20,000 of unused credit which you can use for any purpose at any time of your choosing. As you continue to use extra credit, you become liable to pay interest on the increasing balance.

By minimising your expenditure, you also minimise your repayments, bearing in mind that a line of credit only requires you to make the interest repayments every month.

Now that you understand how a line of credit works it's time to look at how to manage it properly so it doesn't get out of hand. Here are some tips you can follow to make sure you always maintain control of your finances, especially a line of credit.

A line of credit is a good way of establishing your maximum borrowing capacity and having it preapproved and ready for you to use. The first point is that you should not be tempted to use the maximum simply because you have available to you. Always make sure that you stay within your budget and only commit yourself where you feel comfortable with repayments whilst still being able to lead a relaxed lifestyle.

It is easy to minimise your repayments with a line of credit because you are only obliged to make the interest payments every month, it is an interest only facility. But by doing this, you make no impact on the principal borrowed and your debt will never decrease. This is a critical point to understand and the only way to stay on top of your line of credit is to make more repayments than are necessary every month. The best advice to follow is to pretend it is a principal and interest loan, then go to an online calculator and work out what that loan would cost in monthly terms over a five-year period. Use this figure as your minimum monthly repayment and you will soon have your debt reducing.

Whilst line of credit gives you great flexibility it is important to understand that you need to make extra payments in order to keep it under control. Remember that when you use a line of credit as a car loan you have great bargaining power because you can make a cash offer on the spot and can usually negotiate a good price on the vehicle because of this.

by: Todd Bertshinger

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