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Thread: Taking out a line of credit

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    Default Taking out a line of credit

    I've never really been in debt. I just stripped and paid for everthing upfront when my parents no longer would (this includes tuition, etc). So I'm clueless when it comes to credit stuff. I have had a credit card for two years now, but it's the dinky student limit kind. I could probably up the limit because of my bank balance, but I haven't really felt the need (if I need to use it for a purchase greater than $500, which is the limit, then I just add lots of money to it from my bank account and use it like a debit card for internet purchases).

    So. I want to buy a new horse, and to save the cash to buy one outright would take a while. Horses are pricey like cars. I have wondered about maybe taking out a line of credit to do so? I'd rather buy a young one now, since the same horse from September will generally cost more in March because of 'more training' or something. Plus buying one this fall means I could compete it by next spring, hopefully.

    I've heard this would help give me good credit too, assuming I paid it off promptly, which with dancing I know I could. I make pretty good cash dancing, and my other expenses are limited.

    So what else do I need to consider beforehand? What are the pros and cons? This doesn't seem risky or unreasonable to me, but I need some outside perspective, perhaps. And what's the best way to go about actually doing this? Thanks! Sorry if I sound so ignorant.

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    Banned Melonie's Avatar
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    Default Re: Taking out a line of credit

    applying for a line of credit means proving that you are creditworthy. For a self-employed person this now usually means proving a steady amount of income over at least the past two years. As there are no 'paychecks' to present, bankers usually want to see the past two years worth of tax returns to verify reported income. Bankers will also probably want to see cash flow data i.e. transaction history of deposits and withdrawls from your bank / checking account for the last two years.

    I can't claim that I know anything specific about the horse business. However, I would assume that this sort of loan or line of credit would be considered as unsecured ... based on the assumption that a horse with a broken leg is worth practically zero in terms of resale value thus unsuitable for use as collateral. This is different from an auto loan or home mortgage loan, because there isn't any 'established history' of appreciation / depreciation for the banks to go on, thus allowing the auto or home to be used as collateral for the loan used to purchase it. This in turn would probably mean that any such loan or line of credit would need to be secured based on different collateral i.e. equity in a house, stocks or bonds, etc.

    In the absence of different collateral to put up, such a loan would basically fall under the heading of an unsecured 'consumer loan', which is likely to carry a credit card like interest rate if you can find a lender willing to advance this sort of unsecured credit these days.

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    Default Re: Taking out a line of credit

    Thanks for the info!

    I know horses can die suddenly, or get sick. They are usually insured, but that's probably not important.

    I was just curious about the whole thing because I have two different friends who took out lines of credit this year...one so she could travel Europe, and the other so he could finish school. Neither seems to have any assets, so I don't know how they did it. I should probably just ask them.

    Or! Maybe I'll just buckle down and work HARD to save enough for a four year old by November. It can be done!!

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    Default Re: Taking out a line of credit

    Go to the bank and ask if you qualify! It'll take like 10 minutes. My bet is you will.

    It sounds like a fine idea to me...working to save up would work too- it's a quality of life thing, I guess.

    As for hidden traps or whatever, calculate what the horse will have cost you once you pay off the line of credit, including the interest you pay. I don't know how much more money 'trained' horses cost, but you may want to balance the interest on your loan and the increase in cost of the horse in spring and see how big the difference is.

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