4 Ways to Use a Personal Line of Credit

When you need to borrow money but it’s unclear exactly how much, a personal line of credit can offer flexibility.

Using a personal line of credit is like having a giant piggy bank at your disposal: you draw what you need, pay it back, and borrow again.

While a certain amount of money is made available to you based on your credit score, income, and other factors, you only pay interest on the amount you borrow.

Personal Lines of Credit vs. Credit Cards or Other Loans

Like a credit card, a personal line of credit is revolving credit, meaning available credit opens back up once debt is paid off, so you can borrow up to your credit limit more than once. Also similar to credit cards, personal lines of credit have variable interest rates, which are subject to rise and fall based on market conditions.

Because personal lines of credit typically come with lower interest rates and higher credit limits than credit cards, they’re suited for larger transactions and longer-term borrowing. Keep in mind that unlike credit cards, personal lines of credit expire after a set loan term, after which you must reapply.

Most personal lines of credit are unsecured. In other words, you won’t have to offer any collateral to secure the loan, as with a home equity credit line, for example, where your house is used as collateral to guarantee the loan. This makes personal lines of credit more attractive than some other types of loans, but it also means you need to have good credit to qualify.

Terms, Fees and Repayment Types

Loan terms and repayment structures vary widely between loans. Some personal lines of credit may require a balloon payment of the entire balance at the end of the loan term; others may come with set-up costs and annual maintenance fees.

Look for a personal line of credit with a competitive interest rate and no annual fee. A Zions Bank Reddi-Credit® Line*, for example, comes with no set-up costs, no annual fee, or maturity. You can borrow from $10,000 - $100,000, depending on your needs and qualifications, and transfer funds to your checking account anytime via your mobile app or computer, or by visiting a branch.

When should you use a personal line of credit?

There are typically four ways that people use a personal line of credit:

Personal line of credit use #1: Managing ongoing expenses

A personal line of credit comes in handy when you need to manage large expenses like an ongoing home improvement project or college costs, where the total cost is unknown. You’ll likely save in interest payments compared to a credit card, payday loan or cash advance. For a one-time expense, a personal loan that offers a lump sum payment is probably a better fit. 

Personal line of credit use #2: Supplementing irregular income

If your income stream ebbs and flows, a personal line of credit can help manage daily cash flow. It shouldn’t be used, however, to fund a lifestyle you can’t afford.

Personal line of credit use #3: Obtaining quick cash

Sometimes long-term financing takes time. If you need to move quickly on an investment or purchase, a personal credit line can be a ready source of cash while you work out long-term financing.

Personal line of credit use #4: Rainy day fund

An emergency fund is one of the best ways to handle life’s unexpected expenses, but if you’re still saving up or reinvesting for a higher return, a personal line of credit from Zions Bank could help cover unexpected expenses in the meantime.

For a personal line of credit that’s flexible enough to fit your needs, consider a Zions Bank Reddi-Credit® Line. It offers a competitive interest rate and no annual fee, allowing you to cover everyday purchases and personal expenses.

*Subject to credit approval, terms and conditions apply. See banker for details.