How to Calculate a Line of Credit Payment

Step-by-Step Guide

1. 1

   Step 1: Compare lines of credit to other types of financing.

   Lines of credit combine elements of credit cards and traditional loans.
   
   They are like credit cards in that you can only borrow up to a certain amount and can either use the money when you need it or choose to not use the money at all.
   
   However, the line of credit may have a maintenance fee until the credit line is borrowed upon and may or may not begin to charge interest immediately.
   
   Like a loan, a line of credit requires good credit to take out.
   
   However, a line of credit has more flexibility in both repayment and usage restrictions (it can usually be used at the borrower's discretion, provided the line's conditions have not been breached by the borrower in the interim period between the initiation date and the time the line is activated).
   
   Loans taken from a line of credit will also often have a minimum monthly payment, like a credit card.
   
   Lines of credit may or may not be secured by assets (like your home).
   
   Secured lines of credit are borrowed against the value of the asset on which they are secured.
   
   This means that the lender can seize the asset if you fail to repay your line of credit.
2. 2

   Step 2: Determine if a line of credit is best for you.

   Lines of credit are best for purposes involving the payment of variable or unknown expenses.
   
   Many people use them for covering variable monthly expenses or dealing with fixed expenses when income may be variable.
   
   Alternately, they can be used for projects or events that can be difficult to price upfront (like home improvement projects).
   
   However, lines of credit are not best for fixed, single-item purchases, like a house or a car.
   
   Using a traditional loan would be cheaper in these instances., Lines of credit can be great for unexpected or unpredictable expenses.
   
   However, they are more expensive than traditional auto or home loans because they charge higher interest rates and a possible initiation fee.
   
   That said, their rates are usually better than credit cards and are considerably better than payday loans.
   
   In addition, the interest on lines of credit is usually not tax deductible, except for lines secured by homes.
   
   Lines of credit may also charge certain fees, like a withdrawal fee.
   
   Check with the lender to see if this is the case with your line of credit.
   
   Sometimes the interest calculations used on lines of credit can be difficult to understand.
   
   You may end up paying more in interest than you expect.Failing to repay a line of credit may also hurt your credit and keep you from getting loans or credit lines in the future., Lines of credit can be offered to either individuals or to businesses.
   
   For individuals, the types of lines of credit include personal and home equity lines of credit (HELOCs).
   
   HELOCs are secured against the value of your home and follow a specific structure of withdrawal and payment periods.
   
   Personal lines of credit, however, may be unsecured, and only require that you have good credit and a checking account with the lender.Personal lines of credit can also be demand loans, meaning that the bank can request full repayment of the loan balance at any time.HELOCs follow a unique repayment structure that is not discussed here.
   
   For more on HELOCs, see how to calculate an equity line payment.
3. 3

   Step 3: Know the downsides of lines of credit.

4. 4

   Step 4: Understand the different types of lines of credit.

Detailed Guide

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