{"id":14572,"date":"2023-12-12T09:00:12","date_gmt":"2023-12-12T15:00:12","guid":{"rendered":"https:\/\/www.netcredit.com\/blog\/?p=14572"},"modified":"2026-02-24T13:34:35","modified_gmt":"2026-02-24T19:34:35","slug":"how-to-use-personal-line-of-credit","status":"publish","type":"post","link":"https:\/\/www.netcredit.com\/blog\/how-to-use-personal-line-of-credit\/","title":{"rendered":"How To Use a Personal Line of Credit: A Step-by-Step Guide"},"content":{"rendered":"

Managing your personal finances can often feel confusing \u2014 especially when you\u2019re trying to figure out a new financial tool like a personal line of credit.<\/p>\n

A personal line of credit (sometimes referred to as a PLOC or simply an LOC) is a flexible financial tool that can help you manage your cash flow and finance other expenses. It\u2019s a source you can draw funds from as you need them. It can come in handy when unexpected expenses threaten to throw your budget off balance.<\/p>\n

To use a line of credit effectively, it\u2019s important to first understand how it works. Let\u2019s walk through some things you need to know about securing and using a personal line of credit<\/a>.<\/p>\n

1. Determine Why You Need the Funds<\/strong><\/h2>\n

Before making any major financial decisions, you should consider why you need the funds. A line of credit is a versatile financial tool. It allows you to borrow money up to a certain amount and as you repay, the funds become available to borrow again. You typically only pay interest on the amount you borrow.<\/p>\n

A personal line of credit can be a good tool to have in case of emergency expenses, such as your car breaking down. Some of the other common uses of personal lines of credit<\/a> include managing cash flow, paying for recurring expenses and financing ongoing projects such as home improvement projects.<\/p>\n

It\u2019s different from a personal installment loan<\/a>. With a personal loan<\/a>, you receive a lump sum of money up front and pay interest or fees on the whole amount. A personal term loan can be useful for large one-time expenses.<\/p>\n

2. Choose the Lender and Line of Credit<\/strong><\/h2>\n

If you\u2019ve decided that a line of credit is right for you, you now have to decide which line of credit is right for you. A few things to consider when choosing a line of credit include the following.<\/p>\n

The lender.<\/strong> Banks, credit unions and online lenders are some of the financial institutions that offer lines of credit. Different lenders will have different eligibility requirements, application processes, terms and more.<\/p>\n

Credit limit.<\/strong> Look for a line of credit that offers the credit limit you need.<\/p>\n

Interest rate.<\/strong> Your interest rates may be determined by your creditworthiness. A good credit score could help you get better rates, while a poor credit score could mean you\u2019ll have to deal with higher interest rates. A lower interest rate can result in lower costs over time. You should also be on the lookout to see if it is a fixed interest rate or a variable interest rate.<\/p>\n

Fees.<\/strong> Many personal lines of credit come with fees such as annual fees, maintenance fees or withdrawal fees. Be sure to read the contract carefully before signing.<\/p>\n

Secured vs unsecured.<\/strong> Similarly to a secured loan, a secured line of credit is backed by collateral which the lender can seize and sell if you fail to repay. One example of a secured line of credit is a home equity line of credit (HELOC). An unsecured personal line of credit doesn\u2019t require collateral. This could result in higher interest rates, but you don\u2019t risk losing any pledged assets.<\/p>\n

3. Submit an Application<\/strong><\/h2>\n

After you\u2019ve found the right personal line of credit, you\u2019ll need to fill out an application. This can be done online or in person. You\u2019ll need to provide some personal and financial information such as your Social Security number, proof of income and employment verification.<\/p>\n

Depending on the lender you choose, the application process may take a longer amount of time. If you need the funds fast<\/a>, you may want to choose an online lender that can process your application and get your funds to you fast.<\/p>\n

4. Draw What You Need<\/strong><\/h2>\n

Your credit limit is the amount of money you can borrow through a line of credit. You can draw a portion of the available credit, or you can withdraw it all. Keep in mind that maxing out a revolving credit line can raise your utilization ratio<\/a> and impact your credit history. Because of this, it can be best to limit your draws to what you need and pay down your balance as soon as you can. Many experts recommend<\/a> keeping your utilization ratio on revolving accounts below 30% to avoid potentially impacting your credit score.<\/p>\n

5. Receive Your Money<\/strong><\/h2>\n

Depending on the line of credit and the lender, you may have different methods for accessing your funds. Some common examples include:<\/p>\n