Are you considering opening a line of credit with a bank? Choosing the right financial institution is one of the most important aspects of your decision. As you think about your financial goals, consider the following information.

Lines of Credit

Lines of credit are agreements that give you ongoing access to credit during a certain time frame. Before you commit to the line of credit, you can work with a banker to set the maximum withdrawal limit and termination dates. As you pay down the money you owe during the agreement, your credit revolves—you can continue to take out money up to the maximum amount. As a borrower, you only pay interest on the amount of money you currently owe, rather than the entirety of the line of credit. At the end of your contract, you must have paid the owed amount in full.

Concerns

Lines of credit may be challenging for you based on the bank you choose—make sure to learn about potential pitfalls before you sign any documents. Remember that you will owe any balance back to the bank on the day that your line of credit ends; there are no exceptions to this rule. As with other forms of loans, you can secure a line of credit against your home or property. Using collateral can be a risky endeavor if you are not able to pay off your line of credit in full. In that case, you may lose your home. Some institutions may also require that you pay for their services. Certain banks also insist that you pay unused line fees. In other words, you will be charged if you do not meet a minimum spending requirement on the line of credit. This measure can be harmful for borrowers trying to limit their spending.

Getting to the Best Option

The best financial institutions to work with will have little or no fees associated with your withdrawals and will not require a minimum outstanding balance. Look for a line of credit that offers a low interest rate and does not ask for collateral. When meeting with a banker or a financial professional, ask the following questions to discern whether the financial institution is the best option for you and your family:

• Am I eligible for a line of credit through your financial institution?
• Do I need to secure my line of credit with collateral like my home or property
• What is the maximum withdrawal limit on this line of credit?
• What is the interest rate for the line of credit? (Is it fixed?)
• How long will this line of credit last?
• What are all of the fees relating to the line of credit? Please write them down and highlight them on any documents.
• Is there a minimum outstanding balance on this line of credit?
• Are there any fees relating to a zero balance during the duration of the agreement?

By comparing and contrasting the answers from different banks, you can discern the right bank to fit your individual needs. If you think you would benefit from guidance from a neutral professional, consider reaching out to one of CESI’s certified credit counselors to talk about your decision. With backgrounds in personal finance and debt management, these wonderful people are there to help you along the way.

Image source: Flickr

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