What are the pros and cons of a personal line of credit?

When considering whether a personal line of credit is the right product for you, it helps to consider some of the pros and cons.

Pros

• Flexible access to funds: With a personal line of credit, the borrower has access to the overall limit of their loan throughout the draw period, which often lasts a number of years. This provides flexibility not only in the use of the funds but also when the money is actually used.
• Pay interest only on what you use: The beauty of a personal line of credit is that the borrower only owes interest on the money that they actually use from the loan, rather than paying interest on the overall loan amount available to them.
• Reusable cash flow: Assuming you abide by the lender’s terms, once you’ve paid back the amount borrowed from a personal line of credit, the full amount becomes available to borrow again, within the remaining timeframe of the original loan.
• Ability to strategically combine and pay off high-interest debt: Since the money from a personal line of credit can be used for a wide variety of personal or household needs, it's a good way to pay off higher-interest debt, like a student loan or car loan.

Cons

• Potentially high interest rates: Because personal lines of credit are typically unsecured loans, they may come with higher interest rates than other similar products that do require collateral, and the interest rates tend to be variable. At Zenfunds, though, borrowers have access to a personal line of credit with a fixed interest rate that starts at 2.25 – 3.50% Annual Percentage Rate (APR), with discounts¹, which is much lower than the average 5-36% APR.
• Additional fees: It’s common for lenders to charge annual or monthly maintenance fees on a personal line of credit, as well as other potential fees. Zenfunds, however, waives all origination, maintenance and prepayment fees for the life of the loan.
• May be difficult to obtain: Because the personal line of credit is unsecured, most lenders require a credit score of 700 or above to qualify. Generally speaking, the stronger you are financially, the more favorable terms you'll qualify for.