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Second Line of Credit

One financial resource that many home and property should be able to take advantage of is a second line of credit.

There are a number of reasons why a second line of credit can be advantageous to homeowners. The best reason to take out a second line of credit is to take advantage of a source of credit with a lower interest rate.

The reason a person will want to use a second line of credit is that it can save money. If a second line of credit has a lower interest rate than a first line of credit the payments on it can be lower than the payments on the first line of credit. 

Who Qualifies for a Second Line of Credit?

To qualify for a second line of credit on a home or piece of property the owner will have to have enough equity to secure it. Equity is the difference between the value of a home and the amount of money owed against it. If the amount mortgage or debt on a property exceeds the value, the owner has no equity.

A homeowner will be able to get a second line of credit if they have sufficient equity in their property. The more equity the homeowner has, the more credit they will be able to get.

Homeowners with bad or poor credit will be charged more interest on a second line of credit. Those with good or excellent credit ratings will get a better line of credit.

When to Get a Second Line of Credit

The time to get a second line of credit is when the property owner can get a better rate of interest on the second line of credit than their existing line of credit. Paying a lower interest rate will help a person save money on a line of credit.

A person may qualify for a lower rate of interest if their credit rating has improved. If your credit rating has improved since you opened your last line of credit you might be able to get a better rate of interest on a second line of credit.

You may also qualify for a lower rate of interest on a second line of credit if your income has increased or if you have paid off a lot of the debt on a property and increased the equity available. Lenders may grant a lower rate of interest in such situations.

Disadvantages to a Second Line of Credit

The disadvantage to a second line of credit is that you will have to deal with a second lender. Dealing with a second lender means that you will have to pay additional fees and have to make two payments each month. These additional costs could offset any money saved with a lower rate of interest.

A better alternative might be to contact the lender that has granted your existing line of credit. If your credit situation or income has improved this lender might be willing to lower your interest rate or refinance your line of credit with a better interest rate. Dealing with one lender could be much cheaper and easier than opening a second line of credit.