Personal Lines of Credit: Reviews & Comparisons
So you're looking for a personal line of credit. With so many options, how can you choose? What makes one credit line better than another? What factors should you consider when you compare personal lines of credit?
Having a bunch of options is great. But it's easy to get overwhelmed and confused when you have too many choices. Don't worry. SuperMoney has you covered. Read on to learn the 10 factors you should consider when comparing personal credit lines.
Options are great, but having too many choices can leave you confused and overwhelmed. Don't worry. SuperMoney has you covered. Read on to learn the 10 factors you should consider when comparing personal credit lines.
How should you compare personal lines of credit?
The truth is, each lender's offering is different. To find the best fit for you, shop around and compare the following 10 factors.
- Credit line amount.
- Draw period.
- Annual percentage rate (APR).
- Eligibility requirements.
- Quality of service.
- Approval and funding timeframes.
- Collateral requirements.
- Geographic availability.
Here's a closer look at each of these factors.
10 factors to help you compare personal lines of credit
Get answers to these 10 questions before you decide on a personal line of credit.
1. What is the credit line amount?
Lenders offer a wide range of credit line amounts -- anywhere from $100 to $500,000.
For example, one lender may only offer credit lines ranging from $200 to $1,000. While another may have lines of credit ranging from $25,000 to $500,000.
The goal is to find a lender with a credit line range that will suit your needs.
2. What is the draw period?
A credit line's draw period is the length of time in which you can use it. For example, if you get a personal line of credit with a 10-year draw period, you can draw from that credit line for 10 years.
When the draw period ends, your credit line will close and you'll enter the repayment period. During the repayment period, you'll have a set amount of time in which to repay the outstanding balance.
How does the draw period work?
- When you borrow against your credit line during the draw period, you'll accrue interest on your balance until it's repaid in full.
- If you have an outstanding balance during the draw period, you'll only have to make minimum payments each month.
- However, if you make only the minimum payments, your growing balance will accrue more and more interest.
- Whenever you make a payment during the draw period, that payment returns to the credit line, where you can borrow it again.
If you are looking for a short-term solution, a shorter draw period would be a better fit, and vice versa.
3. What are the annual percentage rates (APR) of personal lines of credit?
A personal line of credit's annual percentage rate (APR) indicates the annual cost of borrowing. For example, if you have a 5% APR, you will pay $5 per $100 you borrow each year.
Fixed and variable rates
APRs for personal lines of credit can be fixed or variable. Fixed rates don't change over the term of your credit line. They often start higher than variable rates but remain consistent, offering more security.
Variable rates change throughout the lifetime of the credit line. These often start lower than fixed rates but fluctuate with the market and can end up higher over time.
Each lender offers a range of APRs. APRs for personal lines of credit can be as low as about 6% or as high as 400%. The lenders with the highest APRs cater to higher-risk borrowers with subprime credit, and will usually only offer low credit line amounts.
The APR you get depends on each lender's assessment of your creditworthiness. Most lenders use unique algorithms to consider multiple factors about borrowers and provide a quick decision. Common considerations include your credit score, credit report details, annual income, and employment situation.
The less risky a lender considers you, the better APR you will get. And because lenders don't advertise which factors they prioritize, you'll have to shop around to find the best deal available to you.
4. What are the eligibility requirements to get a personal line of credit?
The eligibility requirements of personal credit lines vary from lender to lender. As a result, one will likely be a better fit for you than another. Common requirements include:
- U.S. citizen, permanent resident, or living in the U.S. with a valid visa.
- At least the minimum age for consent.
- Minimum credit score.
- Minimum credit history.
- Good record of credit usage.
- Minimum annual income amount with proof.
- An active and valid checking account.
- A valid e-mail address.
It's smart to check the eligibility requirements when vetting a lender. You don't want to be over- or under-qualified.
5. What are the fees for personal lines of credit?
Fees vary from one lender to the next. Below are the common fees that you'll encounter with personal lines of credit.
- Origination fees are for processing, underwriting, and funding a credit line. They typically range from 0.5% to 5% of the loan amount. For example, if you get approved for a $6,000 line of credit with a 3% origination fee, that fee will cost you an extra $180. However, not all lenders charge this fee.
- Draw fees are charged by some lenders each time you withdraw from your credit line. This fee may be fixed, or it may a percentage of the draw (5% to 15%). This fee can become expensive over time, so you should look for the smallest one you can find.
- Prepayment fees are amounts that you have to pay if you pay off your credit line in full before the draw period ends. Like origination fees, not all lenders charge this fee.
- Late payment fees are fees that lenders charge if you do not make your minimum payment amount on time. Most lenders charge late payment fees, but they vary in amount.
- Annual fees are charged by some lenders for having an open credit line. If your lender charges an annual fee, you will have to pay it each year.
When you compare personal lines of credit, it's important to look at these fees, as they will have a significant impact on your overall loan cost. The fewer fees a lender charges, the better.
6. What is the company's customer service like?
The quality of service a lender provides will impact your experience and level of satisfaction.
For example, say you made a payment, but it doesn't post. You'd need to contact customer care. In this situation, the quality of customer service becomes important.
Will they be efficient, polite, and effective? Or at the very least, will they be fix the problem? If the issue doesn't get resolved, you'll likely have to pay a late payment fee, and the missed payment could hurt your credit report.
In situations like these, it's crucial that a lender has a competent customer service team in place. The disposition of the customer service representatives can also impact your experience.
To find a lender with great customer service, review unbiased reviews from customers.
7. What are the approval and funding timeframes?
How much time does it take for a credit line to get approved and funded? It varies from one lender to the next. Some lenders approve you same-day, while others take five business days or more.
Additionally, once you're approved, some lenders will make your funding available in as little as one business day, while others take a week or more.
If you need access to the credit line right away, check the approval and funding times of the lenders you are considering.
8. How can you access your money with a personal line of credit?
How would you prefer to access your credit line? Lenders offer a variety of options. For example, some ask you to submit a request to transfer money to your bank account when you need it. Others simply give you a credit card.
When comparing lenders, consider the accessibility of the credit line, and make sure that it suits your needs and lifestyle.
9. Does the personal line of credit require you to provide collateral?
Some lines of credit require collateral to secure the loan. Examples of collateral include an investment account with a minimum amount of funds, a home, a business property, etc.
Because collateral reduces the risk for the lender, secured credit lines often offer higher credit line amounts and lower APRs.
With an unsecured credit line, on the other hand, your APR and credit line amount are determined by your creditworthiness alone.
As such, if you have an asset that you can use as collateral, prioritize lenders offering secured credit lines. These will get you the lowest interest rates, even if you don't have stellar credit.
10. Where can you access personal lines of credit?
Not all lenders serve all states. Before applying to a lender, check their service area to confirm that they lend to borrowers in your area.
By shopping around and considering these 10 factors, you will gain a comprehensive understanding of the offerings available and which suit you best.
Review and compare lenders to find the best personal credit line for youThe right personal credit line is the one that meets your needs at the lowest possible cost. You also need it to have a suitable draw period and a convenient method of access. The goal is to find a line of credit you are eligible for that has competitive APRs, fast funding, and affordable minimum payments.
Doing research on lender websites can be confusing and misleading -- they're looking to sell, not to educate. Instead, read unbiased reviews of the leading lenders in the market. Below, you can review and compare them side-by-side, read our expert artcles, and read reviews from actual customers.Check out the info below to speed up your research process and get the credit line you need ASAP!