Now that you understand what a HELOC Card is, let’s dive into how it works. This article also explains where you can use your card and how it differs from the credit cards in your wallet.
How to get a HELOC Card
To use a traditional HELOC, you typically need to transfer funds to a checking account before making purchases or use special checks issued to you by the lender. This process can be complicated, time-consuming and frustrating. Some lenders will instead give you a HELOC Card to use at your convenience so you can access your funds immediately.
However, there are several requirements to be eligible to apply, including: proving you have a steady income, being listed on your home’s title, having a certain credit score and possessing a valid ID. If you meet the requirements, the application process typically looks something like this:
Where can HELOC funds be used?
- Complete the online application, which asks questions about yourself and your home
- Verify your income by providing pay stubs or a company verification letter
- Meet with a notary to sign required documents
- Receive your card within a few business days
Once your card arrives in the mail, you can start making purchases with it right away. You can use your card at any merchant that accepts major credit cards, like Visa and MasterCard.
Experts recommend using a HELOC Card for purchases that help increase wealth over the long run. For example, many homeowners tend to use their funds on home improvements or remodeling, which can significantly increase the property’s value. You can also use the card to transfer balances from personal loans or other credit cards.
While there are no restrictions on what products or services you can purchase with a HELOC Card, financial advisors typically advise against using your card on frivolous items or experiences, such as vacations or a new car, which are unlikely to increase your wealth. These types of purchases could even make it harder to pay off your HELOC balance in the future.
How to pay for charges made on a HELOC Card
Every month, you will receive a statement with your charges, much like you do with a traditional credit card. The monthly bill for a HELOC Card from Aven, for example, consists of 1% of the principal balance plus finance and interest charges on the average daily balance during your last billing cycle.
If you choose to pay only your minimum balance each month, it can take you a very long time to pay your balance back. You can choose to pay more than the minimum or to make payments more often than once a month if you'd like to pay down your debt sooner. If you can't pay your monthly bill on time, you will likely incur a late fee.
How is a HELOC Card different from a credit card?
While a HELOC Card is used in a similar way as a regular credit card, they are not the same. The main difference is that a HELOC Card uses your home’s equity to secure the loan, while a credit card doesn’t require any collateral. Consequently, HELOC Cards have much lower interest rates than credit cards. However, unlike with a credit card, the rate is usually variable, meaning it moves up and down based on a benchmark rate.
Are you looking for a HELOC Card? Aven is a credit card in the front, home equity in the back. Aven is the world's first home equity-backed credit card and combines the low interest rates of a home equity line of credit with the flexibility of a credit card. Click here to learn more!