Throughout the draw time period, interest will accrue at a fee decided by the line of credit’s interest fee. Most lines of credit score have a variable interest charge based mostly on the prime price plus a margin. For instance, you may see a home fairness line of credit score offered on the prime fee plus p.c or 2 points. The curiosity rate for the road of credit will all the time be 2 % above the prime rate. When the prime charge adjustments, so does your curiosity fee.
However the comfort of revolving credit would not all the time outweigh its disadvantages. The best drawback of revolving credit score is the temptation to spend cash you don’t have. For some shoppers, a $10,000 credit limit is solely too hard to resist. They purchase now without any thought as to how they’ll pay later. And once they max out one bank card, they merely apply for one more and begin over again. One in 10 Individuals has more than 10 bank card accounts [supply: CreditCard.com].
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