Financial Literacy Series: How to Access Lower Interest-Rate Credit for Large Expenses

Unlike credit cards, personal loans come with a fixed interest rate and repayment period, making them a relatively predictable and manageable option for borrowers. Because personal loans provide you with a lump sum amount, they’re best to be used for one-time expenses when the amount you need is known and fixed.

Personal loans have lower interest rates than credit cards and typically don’t come with a fee, making them a more affordable way to borrow.

Personal Lines of Credit let you borrow money up to a predetermined limit, like a credit card (but at a considerably lower interest rate). As you pay down the balance of your line of credit, you can access the available credit up to that limit. Your monthly repayment amount is based on your balance, which may be interest only or a percentage of the principal balance plus interest. You can repay the line of credit in full at any time without penalty.

Given the revolving nature of a line of credit, it’s an ideal solution if you’re managing an ongoing project and don’t know the full scope of the costs upfront.

Like with a Personal Line of Credit, a Home Equity Line of Credit (HELOC) allows you to borrow money up to a set limit as needed. What makes a HELOC unique is that it is secured against the value of your home. As a result, HELOCs generally come with a lower interest rate than a traditional unsecured line of credit or credit card. While most HELOCs require you to only pay the interest on the money you borrow, you can pay off your balance in full or in part at any time without penalty.

Many homeowners use HELOCs for home-related expenses such as renovations or landscaping projects.

Tip: If you’re considering borrowing against your home, it’s worth exploring the option to refinance your home or apply for a second mortgage, depending on your specific need and situation. These options allow you to leverage your home’s equity to access funds.

If you have high-interest credit card debt, you may be able to transfer your balance to another credit card with a lower interest rate. Many credit card companies offer promotional rates for balance transfers, which can help you save on interest charges. Keep in mind that this promotional rate is often time-limited, and after the initial period, the regular interest rate applies.

As you evaluate your credit options, be sure to look closely at the conditions of the rates and understand whether they apply at all times or only over a certain promotional period. It’s also worth comparing products across lenders since rates, fees, and repayment terms will vary. Finding a product with a low-interest rate that is well-matched to your credit needs can help you save money and effectively manage your borrowing.