Understanding the line of credit
A line of credit is a revolving loan that has an agreed credit limit for a specific period of time, usually between a bank and a customer. It ascertains the maximum amount of a loan balance that the bank can allow the customer to maintain. The customer has the freedom to draw down the line of credit at any time he pleases, provided the maximum limit has not been exceeded. A line of credit gives the customer a stretchy access to funds. The money available in the line of credit account is subject to withdrawal at any time and can be repaid at any time during the life of the line of credit. As soon as the funds are repaid, the borrower is free to use the money again. A line of credit can be secured or unsecured depending on the terms of the bank you are dealing with. But there is always a minimum monthly pay, which depends on the amount borrowed and the bank in question.The customer must repay the full amount before the maturity date.
Types of lines of credit
There are two major types of line of credit: personal and business. A personal line of credit is used by people who want to borrow money from their bank for different reasons. The money a person has access to in the line of credit account can be used for anything, including buying a car, renovating a house, vacations, bill paying and settling debts. The limits for a line of credit vary from a few thousand dollars to a few hundred dollars. A business line of credit is also called an operating line of credit. It is used by many small, large and medium businesses all over the world to run their day-to-day operations.
Benefits of a line of credit
Recently, the line of credit loan has become popular among many people because it is easy to get one and it offers a lot flexibility to people who need cash.
One benefit includes instant cash with a line of credit account. This means a person can access cash any time he needs it. It may be for funding projects or paying bills. Whatever the case, you get the money when you need it.
The interest rates for a line of credit loan are usually less compared to the ordinary bank loan interest rates. Interest is only paid for the amount used but not for the whole amount. Funds are used for any purpose After opening a line of credit account, you are allowed to use the funds for anything you please. It may be a vacation, paying bills or even remodeling your home.
Using a line of credit is handy. It is like using a bank checking account because you can use online banking, write checks and access cash with your bank card.
A line of credit account has flexible repayment standards. If a person has money, he can repay the whole amount at once without being penalized.
Conclusion
A line of credit is a handy way of accessing funds. It is a timely credit product that has risen because of current economic trends and their impact on disadvantaged people due to things like external bias, gender and affiliation. But, a person should spend any loan money wisely for purposes that will be of benefit in the long run.
