Many financial planners will tell you that one of the most important elements of a financial plan is liquidity and access to cash. The recession has been difficult and many consumers have had to dip into their emergency funds to make end meet, depleting cash they may have had in reserve. The fact is that you never know when you might need access to cash in a hurry and there’s a good chance that if you’re in situation where you need to access a lump sum quickly, lenders will be hesitant to help you meet that need.

For example, if you lose your job as millions have during this recession, you won’t have the income to get approved for a line of credit. A debilitating accident that takes away your ability to work can have a similar effect. Even for healthy, gainfully-employed people, getting a line of credit in place is much more difficult than it used to be.

One other idea for where a line of credit can come in handy is for people considering buying a home while values are still depressed. A line of credit that is sufficiently large gives you access to cash quickly which can be a helpful bargaining chip when negotiating a purchase price. A seller is likely to slash thousands of dollars off the price of the home when they find out your offer is not contingent on obtaining financing. Even if a line of credit costs a couple thousand dollars to obtain, you could save several times that much money when you purchase a home at a deep discount. Here are some tips that can help you to make sure you put the right line of credit in place for your situation.

- Do Your Homework: There are several options, from home equity loans or asset-backed loans to personal loans. Each type of loan has its own pros and cons and comes with at least some limitations. Talk to a lender you trust about the types of loans that are available and how they compare to one another.

- Understand the Terms: Each type of loan or line of credit has associated terms and conditions. You should be clear on how interest rates are determined, whether those rates are fixed or variable, and the options you have for making payments. Some loans come with prepayment penalties that you penalize a borrower for paying back the funds too early. Read the large print about each loan, but don’t forget to read the small print as well.

- Understand the Costs: No matter what type of loan you get, there will be some costs. The costs can range greatly depending on the type of loan and should be disclosed upfront. Ask a lender for a good faith estimate that outlines all of the anticipated costs of a particular loan or line of credit. The timing of when the costs are charged in the lending process also varies.

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