Line of Credit or Credit Line is a source of credit extended by a bank or any financial institution. A Line of Credit can take the form of an overdraft, a term loan, demand loan, discounting, bill purchase, or a revolving credit card account. Unlike traditional loans, Line of Credit doesn’t give you a lump sum amount, but you can use your credit as and when you need to pay for some unpredictable expenses.
The borrower can use the Line of Credit according to his discretion and will have to pay interest only to the extent of the amount withdrawn from the credit line. They could be unsecured or secured by any collateral security.
It’s not only businesses that make use of Line of Credit to meet their working capital requirements, but individuals too can also enjoy easy approval on personal loan Line of Credit. If it is an unsecured personal Line of Credit, the bank sets a credit limit. The Line of Credit is available for a predetermined period and the rate of interest is also predetermined. If you are in need of quick funds, you can apply for a Line of Credit with your bank.
Amount of Line of Credit you are eligible for depends on your credit score. Higher your credit score, you’ll be able to use a higher Line of Credit limit.
Purpose of Line of Credit
A Line of Credit (LOC) is a credit source from the bank. The main purpose of a Line of Credit application is to have access to funds when you need it the most. Being mostly unsecured in nature, a Line of Credit proves to be a handy financing source without the need for any collateral. Also, since the interest charges are lower than the charges on credit cards, it’s a preferred choice for many.
Line of Credit is a flexible borrowing option which offers a flexible repayment schedule and interest charge restricted to the amount of credit you utilise. You can put it to multiple uses like carrying out home renovation, using it as down payment to book your home, or pay for your children’s education expenses. You can also use Line of Credit for investment purposes. Once the investment reaps profits, you can pay clear off the debt.
However, access to Line of Credit shouldn’t make you a spendthrift, because ultimately it is a borrowing which you have to repay.
Line of Credit – Approval Time
In most cases, Line of Credit is unsecure. Personal Line of Credit is offered on the basis of the creditworthiness of the borrower. When you are applying to a bank or NBFC for a Line of Credit, you’ll get approval in matter of minutes if you have a high credit score.
The best advantage of a Line of Credit is you can tap into the funds as per your needs. As you repay the Line of Credit, you can continue to repeatedly borrow from your Line of Credit dispensing the need to apply for loans on a recurring basis.