Through the draw term, curiosity will accrue at a rate determined by the line of credit’s interest charge. Most strains of credit score have a variable interest fee primarily based on the prime fee plus a margin. For example, you might see a home equity line of credit supplied at the prime fee plus percent or 2 points. The interest price for the line of credit score will at all times be 2 p.c above the prime charge. When the prime fee adjustments, so does your interest price.
But the comfort of revolving credit does not at all times outweigh its disadvantages. The best disadvantage of revolving credit is the temptation to spend money you do not have. For some consumers, a $10,000 credit restrict is just too arduous to resist. They buy now with none thought as to how they’ll pay later. And once they max out one credit card, they merely apply for one more and start once more. One in 10 Americans has greater than 10 bank card accounts [source: CreditCard.com].
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