A line of credit is a useful financial tool that provides access to funds when needed. But like any loan, a line of credit has a finite lifespan. So how long does a line of credit last? The duration of a line of credit depends on the type, but typically ranges from 3 to 30 years total.
What Is A Line Of Credit?
A line of credit is a revolving credit account that allows borrowers to access funds up to a preset limit. It works similarly to a credit card in that you can withdraw money, repay it, and withdraw again multiple times But unlike credit cards, lines of credit have set periods dictating how long you can draw funds and how long you have to pay it back.
The two primary phases of a line of credit are:
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Draw period – The initial period during which you can access the line of credit and withdraw funds up to the credit limit. You make monthly minimum payments during this time, often interest-only.
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Repayment period – After the draw period ends you can no longer withdraw additional funds. You must repay the full borrowed amount plus interest by making monthly installments over a set number of years.
The combined length of these two periods determines the total lifespan of the line of credit.
Draw Period Length
The draw period on a line of credit generally lasts between 3 and 10 years. Some common draw period lengths are:
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HELOCs – Home equity lines of credit typically have a 10 year draw period.
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Personal Lines of Credit – These often have draw periods of 5 years.
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Business Lines of Credit – Draw periods for business lines of credit range from 3 to 5 years.
So for example, if you open a HELOC with a 10 year draw period, you have 10 years where you can access the funds before the repayment phase starts.
The longer the draw period, the more flexibility you have in withdrawing funds for ongoing needs over an extended timeframe. But a longer draw period means interest charges will accrue for more years before you begin repaying the balance.
Repayment Period Length
Once the draw period ends, the repayment period on a line of credit generally lasts between 10 and 20 years.
For example, a typical HELOC has:
- 10 year draw period
- 20 year repayment period
So the total lifespan of this line of credit is 30 years.
Other personal and business lines of credit usually have repayment periods of around 10 to 15 years. Combined with the 3 to 10 year draw period, this means the total duration is between 13 and 25 years generally.
The repayment period length determines how long you have to pay off the balance after the draw period closes. A longer repayment term means smaller monthly payments but greater interest costs overall.
What Happens At The End?
At the conclusion of the repayment period, here’s what happens:
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If you’ve paid off the line of credit completely, the account simply closes.
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If you still carry a balance after the repayment period ends, the lender can demand full repayment of the remaining balance or pursue collection actions.
To avoid owing a lump sum or facing collection efforts, it’s essential to pay off your line of credit by the end of the repayment term.
Some options if you won’t be able to pay in full include:
- Refinancing into a new line of credit to get a new draw period
- Consolidating the balance into a fixed rate installment loan
- Taking out a personal loan to pay off the balance
Careful planning and monitoring of your outstanding balance is key to ensuring you can fully repay a line of credit before the repayment period runs out.
Factors That Determine Length
The main factors that influence the lifespan of a line of credit are:
Type of Line of Credit – HELOCs tend to have longer terms than other lines of credit. Personal lines of credit typically last a moderate amount of time, while business lines of credit often have the shortest durations.
Lender – Every financial institution sets their own policies on draw period and repayment period length. So the same type of line of credit from different lenders could have different durations.
Loan Amount – Larger credit limits and loan amounts may come with longer repayment periods.
Your Credit – Borrowers with excellent credit may qualify for longer repayment terms than those with poor credit.
Tips For Managing Lifespan
Here are some tips to make the most of a line of credit over its lifespan:
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Understand the exact draw and repayment lengths to plan your borrowing and repayment strategy.
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Don’t withdraw more than you need – high balances can be difficult to pay back before the repayment period ends.
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Make principal payments during the draw period to reduce the balance before repayment phase starts.
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Refinance or consolidate your balance if you won’t be able to repay it entirely within the repayment duration.
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Contact your lender as you near the end of the draw period to prepare for the transition to repayment phase.
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If you pay off the full balance early, request to close the line of credit.
Knowing the timeline of your line of credit will help you manage it strategically over its lifespan. Careful borrowing and disciplined repayment habits are key to ensuring it doesn’t turn into a long-term financial burden.
What are the pros and cons of a personal line of credit?
There are many factors to consider when thinking about a personal line of credit. Here are some:
Pros
- Interest payments: Unlike a traditional (term) loan, you only pay interest on the money that you use, rather than paying interest on the overall loan amount.
- Flexibility: A personal line of credit usually has a long draw period, often a few years. That means you can access the money any time you need it.
- Replenishing balance: When you pay back money within the draw period it becomes available again to borrow.
- A powerful financial tool: The money from a personal line of credit can be used for just about anything, so it can be a powerful way to pay down higher-interest debt.
Cons
- Interest rates: A personal line of credit may come with a higher interest rate than similar products like a term loan. (Though the rates are usually lower than a credit card.)
- Variable interest: Interest rates tend to be variable for a personal line of credit, though some banks offer fixed rates.
- Fees: Most personal lines of credit have associated fees like an annual or monthly maintenance fee and a transaction fee which is charged every time you draw money.
- Credit score: Because a personal line of credit is not usually backed by any collateral—its unsecured—people with a low credit score may have difficulty qualifying or getting favorable rates.
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Just like a credit card, a personal line of credit gives you access to funds immediately. And you only pay interest on the money you use. That’s super handy when you have a big project or bill with lots of unexpected costs or if you want to consolidate high-interest debt.
How Long Does a Home Equity Line of Credit Last? – CreditGuide360.com
FAQ
How long can a line of credit last?
At this point, you will be required to pay the entire balance of your line of credit, plus interest. The timelines on LOCs can differ by lender and type, but a typical draw period lasts about five years, while the repayment period can last seven years or more.
Is there a time limit on a line of credit?
A line of credit is an extension of credit by a lender for a preset maximum amount for a shorter period of time (generally 12 to 24 months).May 26, 2023
Is there a downside to a line of credit?
… lines of credit include the temptation to spend more with easy access to money, variable interest rates, missed payments that could damage your credit score …Aug 2, 2024
How many years do you have to pay off a line of credit?
How long do you have to repay a HELOC? HELOC funds are borrowed during a “draw period,” typically 10 years. Once the 10-year draw period ends, any outstanding balance will be converted into a principal-plus-interest loan for a 20-year repayment period.
How long does a line of credit last?
Most lines of credit have two phases: Draw period: Once approved for a line of credit, you’re in the draw period and can use the funds as often as you want. The draw period can last two to five years. During this time, you’ll receive a monthly bill that shows any advances, payments, interest and fees.
What is a personal line of credit?
Lines of credit can be useful in situations where costs may not be known upfront. Personal lines of credit may also be part of an overdraft protection plan. Lines of credit have similarities and differences compared to other financing methods like credit cards, personal loans, and payday loans.
How long does a home equity line of credit last?
The draw period typically lasts up to 10 years. During this time, you’re usually only required to pay interest on what you borrow. At the end of the draw period, you’ll begin repaying what you borrowed plus any outstanding interest. A home equity line of credit (HELOC) is a financing tool that converts your home’s equity into spendable funds.
What happens after a draw period on a credit line?
Repayment period: After the draw period, the credit line goes into repayment. During the repayment period, you can no longer withdraw money and you make principal and interest payments for the rest of the term. Applying for a line of credit is similar to applying for a personal loan or credit card.
Should I start a new line of credit with a draw period?
You’ll have to pay interest on the balance, but you’ll be back in the line of credit’s draw period, meaning you can avoid principal payments. While this delays the inevitable, starting a new line of credit, with a new draw period, might make the most immediate sense. Pay your HELOC off with a home equity loan.
What is a line of credit?
A line of credit is a revolving loan that allows you to access money as you need it up to a certain limit. You can borrow up to that limit again as the money is repaid. Learn more about what a line of credit is, about the different types, when to avoid them, and how to use them to your advantage.