There’s a wide array of financial products on the market today that promise to help you handle debt or lower monthly payments. Determining which one is right for your particular needs is an integral step in achieving your personal financial goals.
While you may be familiar with some of the more common financial products, you might not have considered how taking out a personal line of credit can be useful, especially as it relates to particular scenarios.
If you’ve been struggling with any of the following, consider how the ability to draw from a personal line of credit might help you get your personal and financial ducks in a row — and put you on the path to financial stability.
1. Student loan refinancing
How it helps: A personal line of credit allows you to borrow money to pay off any student loans you might be carrying from multiple lenders. The benefits of this process would be twofold. For one, you'd combine your payments into one easy monthly payment to the financial institution that issued you the personal line of credit. Moreover, you could also save money in the process, if the interest rate for the personal line of credit is lower than the interest rate you’re currently paying for your student loans.
Note: The CARES Act, passed on March 27, 2020, suspends all payments for certain types of federal student loans until September 30, 2020. Interest will not accrue during this time period. The CARES Act does not apply to private student loans. For borrowers with private student loans, it may make sense to refinance now, or combine their student loans into one payment at a lower interest rate, to save more and get out of debt faster. Learn more here.
2. Cover home expenses
How it helps: Whether you bought a fixer-upper or not, most homeowners need to make repairs or upgrades at some point. Whether you are looking to furnish a new apartment or replace a few appliances from an outdated kitchen, a personal line of credit may be an option for household projects that have a smaller cost or a shorter timeline.
A personal line of credit can be an ideal solution for home improvements because how much you ultimately borrow is up to you. You can take out up to the amount of loan you’re offered, but you’ll only pay interest on the money you actually do borrow, as opposed to your overall limit amount. On top of that, you have the entire length of the loan (often a number of years, depending on the lender) to figure out how much you need.
First Republic’s Personal Line of Credit consists of a two year Draw Period, during which the borrower makes interest-only payments, followed by an Amortization Period (or Repayment Period), during which the borrower makes full principal and interest payments for the remainder of their term.
Another product used for substantial household improvements is a Home Equity Line of Credit, also known as HELOC. HELOCs often offer a ten-year draw period with a 15 year repayment and offer higher line amounts. Additionally, HELOCs are a secured product as the borrower’s home serves as collateral. Large or long-term home projects would be better suited for a HELOC. Learn more about how First Republic’s Personal Line of Credit compares to other personal loan types here.
3. Plan for your family’s future
How it helps: Family planning can cover a myriad of things, from fertility treatments and your child’s education costs to elder care for aging family members. One thing that’s certain, however, is that the overall costs are often significant and can be difficult to perfectly time in accordance with your finances or cash on hand. For instance, fertility treatments can run the gamut, depending on which route you decide to take, so the total, final costs can be difficult to predict. As another example, you might be committed to providing for your child’s K-12 private education, but you may not want to liquidate your investments to pay for tuition or might plan to use your variable compensation to cover the cost.
As such, even families who are avid savers and plan ahead could likely use the flexible access to cash that a personal line of credit provides. Since you can apply for the line of credit now and not actually withdraw the money — or start paying interest on it — until you actually need it, you can secure your financing for these important, planned future family needs now.
4. Finance an auto purchase
How it helps: Aside from a house, your car is probably one of the more expensive things you’ll purchase.
A personal line of credit can help you pay down the principal on an auto loan or, if you haven’t settled on which car you want to get yet, it can help you purchase your car at a later date. Since a personal line of credit is a flexible loan where the money is available for you to draw from over a number of years (depending on the length of your applicable draw period), you can apply for the line of credit now and do your car shopping when you’re ready.
Then, when you’ve found what you want, your personal line of credit might allow you to pay for the car in full, and then to pay off the amount you borrowed in low monthly installments.
Dream big and choose wisely
There is no one-size-fits-all answer for the myriad of financial needs that we come across, but it helps to have options. A personal line of credit helps in the situations listed above (and many others) because it is a flexible product that allows you to borrow money during a set period of time — and start paying interest on that money — only when you need it. It’s a liquidity safeguard that can help you secure financing for your future goals, now.
If you’re interested in learning more about how a personal line of credit might help you meet your own specific financial needs, an expert at First Republic Bank is waiting to help.