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Lines of Credit Explained (What Is a Line of Credit and How Does it Work) - YouTube
Channel: Darlington Academy
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In today's video we are going to take a deep dive聽
into understanding lines of credit at some point聽聽
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you have either heard your financial institution聽
or your mortgage broker mention words like聽聽
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home equity line of credit secured or unsecured聽
line of created personal line of credit student聽聽
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line of credit etc while all that may be confusing聽
to most people in this video we are going to break聽聽
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it down in a simple and easy way to understand for聽
this topic we are going to cover these key points聽聽
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number one what is the line of credit number聽
two choosing the right line of credit for you聽聽
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number three pros and cons of a line of credit and聽
finally number four what you need to know before聽聽
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you borrow remember to subscribe to my youtube聽
channel and hit the notification button in聽聽
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order to be notified when i make further videos聽
let's quickly dive in number one what is a line聽聽
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of created a line of credit is a type of loan that聽
lets you borrow money up to a preset limit you can聽聽
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pay back the money at any time but you will have聽
to pay interest on that money on a monthly basis聽聽
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once you make any withdrawal you only pay interest聽
monthly on the amount you withdraw until you pay聽聽
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the balance back in full usually the interest聽
rate on the line of credit is variable meaning聽聽
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it may go up or down over time your credit聽
score may also affect the interest you will pay聽聽
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on a line of credit as it tells lenders聽
how risky it is to lend you money meaning聽聽
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the higher your credit score the lower聽
the interest rate on your line of credit聽聽
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for some lines of credit you may have to pay聽
a registration or an administration fee it is聽聽
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vital to ask your financial institution about any聽
fees associated with a line of credit you borrow聽聽
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each month you will get a statement showing聽
the amount you owe on your line of credit and聽聽
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you must make a minimum payment every month this聽
payment is equal to the monthly interest usually聽聽
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but paying only the interest means that you聽
would never pay off the debt you owe number two聽聽
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choosing the right line of credit for you you can聽
either apply for a secured or unsecured line of聽聽
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credit with a secured line of credit you can use聽
an asset as collateral for that line of credit聽聽
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but if you don't pay back what you owe the lender聽
can take possession of that asset the advantage聽聽
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of a secured line of credit is that聽
you can get a lower interest rate聽聽
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a home equity line of credit is a type of secured聽
credit where your house acts as a collateral聽聽
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and it usually has a higher credit limit and lower聽
interest rate than other loans and lines of credit聽聽
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but with an unsecured line of credit the聽
loan isn't secured by any of your assets聽聽
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examples are personal lines of credit and聽
student lines of credit a personal line of聽聽
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credit may be used for unexpected expenses聽
or consolidating higher interest rate loans聽聽
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while a student line of credit is specifically聽
for paying for post-secondary education聽聽
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in order for a lender to determine your聽
credit limit and interest rate after you聽聽
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apply for a line of credit they will聽
ask for a lot of personal information聽聽
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this is to confirm your identity verify your聽
finances to ensure you can repay your debt聽聽
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they will consider your income your current聽
level of debt with other financial institutions聽聽
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your credit report which is your record of paying聽
your bills on time or paying back money you borrow聽聽
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most financial institutions usually require a聽
minimum household income of thirty five thousand聽聽
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to fifty thousand dollars to approve a line聽
of credit number three pros are cons of a line聽聽
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of credit before you ever take on a line of credit聽
loan it is vital you compare the pros and cons聽聽
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the main pros of the line of credit usually聽
are a you will pay a lower interest rate聽聽
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compared to a credit card or a personal loan聽
b depending on the type of line of credit and聽聽
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financial institution you may not be charged聽
set up fees or annual administration fees聽聽
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and if you bank with the same financial聽
institution where you got your line of credit聽聽
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you may be able to have any overdraft on your聽
checking account transferred to your line of聽聽
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credit while the cons of a line of credit are a聽
with easy access to money from a line of credit聽聽
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you might you may get into serious financial聽
trouble if you don't control your spending聽聽
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b if interest rates increase you may have聽
difficulty paying back your line of credit聽聽
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number four what you need to know before you聽
borrow when you get a loan or line of credit聽聽
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with a federally regulated financial institution聽
you have the right to receive certain information聽聽
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your lender may offer optional insurance for your聽
line of credit also known as balance protection聽聽
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insurance balance insurance or credit protection聽
insurance it is vital to know that you don't need聽聽
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to sign up for insurance to be approved on your聽
line of credit although this type of insurance聽聽
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may help cover a certain amount of your loan聽
payments if you can't make them due to illness聽聽
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accident debt or if you lose your job but ensure聽
you read the certificate of insurance to determine聽聽
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what's covered what is excluded and the聽
maximum amount of your line of credit that聽聽
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will be covered before adding line of credit聽
insurance the price of the insurance may vary聽聽
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based on your age and the amount of your line聽
of credit the price may also vary between聽聽
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lenders note that federally regulated lenders聽
such as banks can't add optional insurance on聽聽
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your line of credit without your permission聽
thank you guys for watching and bye for now
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