Get a Line of Credit for Your Dream Wedding

There are not that many big days in your lifetime.

16:28 14 March 2019

When people ask, ‘When is the big day?’ or ‘Are you ready for the big day?’ you know what they are talking about. There is every reason why weddings are called the big day, as you embark on this life altering journey with the man or woman who your heart and mind chose.

Practically everyone has, at one point or another, imagined what kind of wedding they want. And as the day gets closer, it’s no longer part of the imagination but the real deal. Then you’ll think about what you’ll wear, who will be invited, the venue, the menu, the décor, the music, the photography and so many other details. By that time, you’ll know that the big day comes with a big cost. You might try to cut down costs here and there, but they won’t usually amount to much. You might then even think of sacrificing your dream wedding for the sake of not spending on it, but does anyone who has had their heart set on a beautiful wedding really want to do that? You might have a friend or relative who had to do that, and it’s quite heartbreaking to do so. Or you have friends who did get the wedding of their dream, but also began their new life with a debt of borrowed money to pay for it. The thing about weddings is that they don’t have to be lavish to be costly. Even the smallest and simplest of weddings can burn a hole in your wallet.

But what if we told you that you don’t have to cut down on costs and you don’t have to sacrifice your dream wedding and you can even have a more unrestrained one than you planned for? This is very possible when you choose to have a line of credit, (LOC).

We’ll tell you more right now about LOC and how they work and why you need to consider it when it’s your time to get married, or consider getting credit for any other big purchase payment that you don’t have enough cash for.

What is a line of credit?

If you’re not familiar with it, a LOC is a type of loan. If you’ve ever taken a bank loan, you will know that it’s always a large sum of money injected into your account. Right away, you need to start paying back the bank loan whether you spent all of the loan or not. Your LOC works more like a credit card, where you only pay back the money borrowed with interest.

Two types of lines of credit

Lines of credit come as secured and unsecured credit. Secured credit is backed with collateral. This could be a house or piece of property, or a vehicle, for example. Of course the higher the loan, the higher the collateral as borrowers do need some sort of security that the money will be paid back. This type of LOC is low in interest as there is not much risk involved. The other type is unsecured where you can borrow credit without collateral. Because it’s more risky for loaners, so the interest will be higher. The average interest rate on an unsecured line is can be around 7 – 15%. Secured lines are substantially lower, often between 4 - 6% of interest but keeping in mind that interest on them is variable.

You can have a business line of credit or a personal line of credit. In principle, they work the same using provided collateral. In personal lines of credit, collateral is personal property, while in business the collateral will be a business asset, usually your office or even the furniture inside of it.

Difference between bank loan, credit card and line of credit

Is a line of credit better than a loan? This is a question that many people ask. Here are some reasons why the answer to this question is always a ‘yes’.

Traditional loans:

We’ve already mentioned that a bank loan must be paid off once you borrow; not once you spend. If you need another loan, you will have to go through the same process again with the bank to be eligible for it, and even then there is no guarantee you will get the loan. In the case of traditional loans, the entire approved amount is transferred to the borrower’s account. In the case of the line of credit account, the twist lies in the fact that the borrower doesn’t need to transfer or use the whole approved loan all at once into their own account. Once you do start withdrawing from your LOC, you start to pay back. A LOC differs from traditional bank loans in that you only pay back on what you spent and only pay when you start spending it. So, say you have a LOC of $10,000 but didn’t withdraw any of it, then you don’t pay any interest on that $10,000. A personal line of credit is reusable. Once you are approved for it, you can access any portion of the credit line at any time as long as it is still maintained. You can just utilize a part of the approved LOC. You can do this as often as required until the collective borrowings reach the threshold limit of the maximum granted loan. At the end of the billing cycle, the borrower can choose to pay back the entire amount of money used or can make a minimum payment according to the mutually agreed upon terms. It might look like a credit card account, but unlike credit cards which charge whooping high rates of interest on the borrowings, a line of credit comes with a lower rate of interest.

Credit cards:

Credit cards are great for daily spending or for small purchases, but when a huge purchase is made, it becomes a burden to pay back with high interest rates. This is why we always hear about or know people getting into credit card debt and use a credit card as if it is an endless source of money. With a line of credit, you get your money in cash which you will use for a certain purpose. As long as you maintain your LOC, you will always have money when you need it.

The unique difference is that unlike a traditional loan, a LOC attracts interest only on the amount borrowed and not the overall approved loan. Consequently, you can say that line of credit accounts come with a better flexibility of utilizing the loan amount and repayments. Lines of credit offer flexibility when it comes to monthly payments. Typically, you can make the minimum payment, pay the full balance or pay an amount in between.

Both credit cards and lines of credit are similar in that they have a fixed, preset credit limit that you cannot go over. The advantage is that you decide when you want to withdraw, and if you have paid back all the money you owed, you will always have a revolving source of credit.

How do you apply for a LOC?

Financial companies or institutes can be found online. The whole point for an online lender is to make applying easy for you, without the usual time it takes to wait for a bank approval. For those wanting an unsecured credit, you will at least need to show that you have some source of money, such as an income, even if small. Online applications are very convenient and just a few steps will get you the credit you need. You will be assigned a credit limit and agree to certain terms according to the financer. Check for the different services online and read reviews. Check that there are no surprise fees, or extra fees for application. Like everything else online, you want to feel comfortable and secure with the people you’d be dealing with. Actually, it makes sense that the lender might be more worried than the borrower. Either way, there are several reputable financers online and if you’re not comfortable with one, move on to another.

When to use a line of credit

A line of credit is considered a reservoir of cash and should be used intelligently. Having a reserve of money will always make you feel safe, so it’s not the kind of money you want to spend on a shopping spree, for example. Thinking to use it for your daily needs is a red flag that shows you’re struggling with money, so a line of credit might not be your best choice. It’s wisest to use it for:

Big purchases:

Big purchases are not on most people’s daily to-do list. This is why we mentioned a wedding, which is or should be a one-time, big spending event. Besides big purchases, it can happen, more often than not, that you find yourself having to pay multiple purchases at the same time. This is very stressful on individuals and families and would be a good reason to seek out a LOC.

Unexpected bills or circumstances: At any time you can get an unusually large bill to pay. Or, again like for a wedding, you exceeded the original budget you were planning for. Most wedding preparations do exceed what you were planning to spend, but it’s all for the greater good! Accidents, illness, emergencies are all types of other circumstances that anyone is prone to, so it’s very wise to be ready.

Uneven source of income:

This can be often the case with freelance workers where they do have a steady cash flow coming in, but it’s uneven and not a fixed amount as a salary. So one month, you might have good cash coming in, but another month not as good. In this case, a LOC would be a good idea as long as you know you’re able to pay the minimum payment on the borrowed cash.

Generally speaking, you should have financial self-restraint if you’re thinking of applying for a LOC because the money is right there and can be used at any time and for anything as you will probably not be asked what you need the money for. But no one is your keeper after that, so you need to make wise decisions on how the money will be spent. You also need to plan on how you will pay it back, how much you will pay back, and when.

Common myths

• One of the most common myths about LOCs is that only poor people need it. Actually, it’s the opposite in terms that you need to show some proof of a steady source of money coming in monthly. Otherwise, you could get your application request rejected from any reputable lender. Borrowing money might never be your favorite thing to do, but neither is being in credit card or bank debt.
  
  
• Line of credit is only for those in debt is another favorite myth. One of the main benefits of getting a LOC is so as not to fall into debt. While some people might want to get a LOC to pay off another debt, it is not a criteria to apply for a LOC.
  
  
• The third myth is that the interest is too high. We’ve already discussed this, but to add another point, it will not be as high as a personal loan. You will not pay any interest until you tap into the credit and you’ll only be charged interest on the outstanding balance you carry.

Put your mind at ease

Very few things are as disappointing as not getting the wedding you've always dreamed of. What makes it worse is not being able to have it due to financial reasons. But this once in a lifetime dream can easily become your reality. There is no reason to deprive yourself from any big purchase of something you really want and will cherish, when there are lenders out there willing to help you. Having a reserve of money will always make you feel secure and it never hurt anyone.