Impulse Spending – When compared to other revolving credit forms, a personal line of credit provides with the risks of impulse spending. When you take responsible steps on a project ahead of the time and avail a loan, you have an idea where your money will go.
Since the advantage of the line of credit is flexibility, you get even more spending uncertainty. Thus, it is much easier for a prospective borrower to get lured into some unexpected and unplanned and unnecessary expenses.
Volatile Payments – When there is a lack of assurance on the total borrowing amount, it also depicts an inability to predict the loan amount payments.
The concept is simple to understand – As you keep borrowing, the loan balance also keeps increasing, and your monthly payments shoot up. Some lines of credit need a borrower to pay only the interest component as the EMIs for an initial period.
Yes, the structure reduces your payments but also holds-up paying down the balance of the loan. As a result, debt budgeting compulsions is a challenge with such conviction.