debt

Borrowing with personal lines of credit

The credit union does not used risk-based pricing when setting interest rates. Instead, customers pay 10.75 percent interest if they have their payment automatically deducted from their account or payroll check and 11.25 percent if they pay by another method, Gardner says.

At other institutions, such as Boeing Employees Credit Union in Seattle, pricing is risk-based, so the interest rate can run the gamut from 8.9 percent to 18 percent, says risk-model manager Will Gix.

The interest rates are slightly higher than those on BECU's Visa credit card because the credit union has found that personal lines of credit carry a slightly higher risk of buyer default than the credit cards, Gix says.

By contrast, rates on HELOCs have hovered around 5.5 percent in recent months, according to Bankrate's weekly survey of rates across the nation. To see the latest rates, click here.

In addition, interest payments on HELOCs generally are tax-deductible. That is not the case with personal lines of credit.

Convenience, other advantages

Still, personal lines of credit do have advantages. Many are tied to a checking account and also provide overdraft protection. People who are approved for a personal line of credit often can access the money within a day or two.

"A lot of people are starting to catch on to how easy and convenient they are to use," says Clarissa Hack-Rodriguez, communications analyst with Security Service Federal Credit Union in San Antonio.

In addition, a person with a good credit history can get a personal line of credit with an interest rate of as little as 6 percent, she says.

"In times like this, they would be a useful option," when money is tight and unexpected expenses can pop up, she says.

Other financial institutions offer secured personal lines of credit. Affinity Federal Credit Union in Basking Ridge, N.J., offers stock-secured lines of credit, through which the credit union takes custody of the stock certificate and lends up to 50 percent of its value, says Joan Grimes, assistant vice president of consumer loans.

"It's always better with secured credit because the interest rate is more attractive," she says.

And although personal lines of credit may have higher rates than HELOCs, the interest rates on personal lines of credit are usually much lower than a credit card cash advance or a payday loan.

Vallat believes personal lines of credit are a good option for many borrowers.

"It's a really smart tool to have in your financial tool chest," he says.

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