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CostHelper > Personal Finance  > Taxes & Financial Planning > Line of Credit

Line of Credit Cost


How Much Does a Line of Credit Cost?

 
 average costRange: 9-24 percent interest 
Typical costs:
  • Interest rates range from 9-24 percent, depending on your credit rating, the maximum amount approved, and often the prevailing prime interest rate[1] . Depending on your credit rating, you may be charged the current prime rate plus 1 percent or 2-6 percent or more, which means if the prime rate soars, so does your monthly payment. Some plans have limits on how high a monthly payment can increase or how low the interest rate can drop.
  • If a personal line of credit is secured by homeowner's equity, there can be a number of up-front charges similar to taking out or refinancing a mortgage: an application fee of $75-$300; a $150-$400 property appraisal fee; points, one of which is equal to 1 percent of the credit limit; and $75-$300 in closing costs such as fees for attorneys, mortgage preparation and fling; property and title search; and taxes.
  • A line of credit may have a $50-$150 annual maintenance fee, as well as a $25-$75 transaction fee each time you take out money. Again, not all plans charge these fees.
  • The interest paid on a home equity line of credit may be deductible under federal and most state income tax laws, cutting the overall cost of borrowing money.
Related articles: Credit Card, Financial Planner, IRA, Stock Broker

What should be included:
  • A personal line of credit is a promise from a bank or other financial institution to loan you a specific amount (usually between $5,000-$200,000) anytime you ask for it, within a certain period of time. The advantage over a standard loan is that you only have to apply once, you don't have to make payment until you take the money out, and you can repay and re-borrow up to your maximum limit during the life of the plan, which can be 1-10 years. The line of credit may be renewed, or there could be a balloon payment due when the plan ends. Wells Fargo Bank[2] provides a chart comparing its line of credit with its personal loan.
  • A line of credit can be unsecured, in which case the credit limit tends to be lower and the interest rate higher, or it can be secured by homeowner's equity or investments such as stocks, bonds or CDs. A secured line of credit usually has a higher maximum limit and a lower interest rate.
  • The Federal Reserve Board[3] provides a detailed explanation of home equity lines of credit.
  • The Chicago Tribune provides a glossary of terms and suggests looking at a traditional second mortgage (a fixed amount of money loaned and repaid in fixed payments) before deciding on a home equity line of credit.
Shopping for a line of credit:
  • Carefully read the terms and conditions of various line of credit plans, noting the annual percentage rate and also any costs to create the line of credit, which may vary significantly between lenders.
  • Since the terms of a line of credit depend heavily on how the lender views your creditworthiness, check the terms at your current bank (assuming you have a good account record) as well as other sources.
  • Lines of credit are available from a number of sources, such as: INGDirect.com[4] , Washington Mutual Bank[5] .; Bank of America[6] , and eLoan.com[7] .
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External Resources:
  1.  www.moneycafe.com/library/primerate.htm
  2.  /www.wellsfargo.com/personal_credit/products/line_loan.jhtml
  3.  www.federalreserve.gov/Pubs/equity/equity_english.htm
  4.  /home.capitalone360.com/home-equity
  5.  /www.chase.com/wamuwelcome3/
  6.  www.bankofamerica.com/state.cgi?section=generic&update=&cookiecheck=yes&destinatio...
  7.  www.eloan.com
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