A line of credit, also called as the credit line or credit limit, is the term used for the maximum amount of money that a borrower is allowed to obtain or use from this type of loan. Line of credit loans, as it implies, are loan arrangements wherein the borrower can withdraw funds on their own discretion from a certain maximum amount that has been set by the lender or a bank.
How Does The Process Work?
The line of credit is basically established by a lender based usually on the credit history of the borrower. The amount that can be drawn is flexible, and it can be drawn in such a way that the outstanding balance of the loan does not exceed the credit line. The withdrawal of funds can be done anytime, anywhere as the need arises. The best part is that the interest will only be charged on the amount that the borrower actually makes use of. This indicates that if you do not borrow any amount from the credit line, you will not be paying back anything. Paying back the borrowed loan amount is also quite flexible; it could be a smaller amount or the borrower may consider paying off the loan balance completely. Sometimes, the entire balance of the loan and the credit limit is restored corresponding to the loan amount being paid.
The interest rates on these types of loans are generally higher than the interest rates being offered on the standard loans. The rates also vary and are based on the rates the amount if drawn on and when the account balance remains unpaid.
Who Should Opt For The Line of Credit Loans?
Credit line loans are best suited for all those who prefer having several smaller loans over the period of time, like expanding their business, paying for a new car, buying equipment, etc. instead of applying for a bigger amount of loan that covers that projected present and future expenses, the borrower perhaps applies for the credit line loan where he gets to draw smaller amounts at the time he requires them. As the loan amount is drawn on a staggered basis and the interest rate is applied only to the time when the amount was withdrawn, the borrower gets to save more on the interest payments.
Different loan types are now available for different lifestyles – that is why we have a bigger financial market today. Browse through https://www.andsolved.com.au/ to easily compare and evaluate the different loans options that are best suited for your lifestyle.