Regardless of how well you plan and budget, unexpected expenses can arise at any time. Whether you suddenly have car trouble, discover a leaky roof, or require medical care, you may find yourself needing quick financial help. Taking out a line of credit is one option that allows you to access extra funds when necessary. However, before borrowing money, you must understand the terms and your repayment obligations. To determine if this is a good option for you, here are the answers to some frequently asked questions about lines of credit.

How does a line of credit work?

A line of credit is a type of loan that financial institutions offer. Once your application is approved, the amount you qualify for will be placed into an account that you can withdraw from as needed. You’ll pay either the monthly minimum amount due or make larger payments to reduce your principal balance faster. As you make payments, more funds will become available to borrow.

What can it be used for?

While you can withdraw money to meet virtually any financial need, lines of credit are particularly useful for those who might require cash for some time. For instance, it can cover costs for an ongoing home renovation project, or it can help bridge the gap for freelancers who are waiting for their next paycheck.

What’s the difference between a secured and unsecured line of credit?

When you take out a secured line of credit, you must provide the lender with one of your personal assets—such as a car or home—as collateral. They’ll use this to recover what you owe if you default on the loan. In contrast, unsecured lines of credit don’t require collateral, though they often have higher interest rates.

What are the benefits?

Lines of credit allow you to use up to 100% of your preset borrowing limit, whereas you can only access a portion of your limit in cash when using a credit card. This is important if you have a big purchase that can’t be placed on a card. Additionally, you only pay interest on the money you withdraw, and rates can be much lower than credit card interest rates.

If your finances need a boost, turn to your trusted local credit union to ask about applying for a line of credit.  With hundreds of millions of dollars in assets and over 60,000 members across Hawaii, Hawaiian Financial FCU is one of the leading financial institutions in the state, with a reputation for combining personalized service with technologically advanced personal banking solutions. Learn more about our broad array of services, follow us on Facebook, Twitter, and Instagram for news and updates, or call (808) 832-3700 on Oahu or toll-free at (800) 272-5255 with any questions.