Line of Credit

Whether to fund a home improvement project, pay tuition fee or a medical emergency, or to buy a car, a line of credit is one of the best options you have, especially if you are in a situation that requires a large amount of money or an unpredictable and variable cost, or if you have multiple borrowing needs.

What is a line of credit?
A line of credit or LOC is a flexible borrowing option that allows you to take out money from a bank or financial institution. It basically works like a credit card in that it gives you the freedom to use funds anytime it suits you. The difference is that a line of credit has much lower interest rates and charges.

With a line of credit, there is an agreement that allows you to establish a maximum amount of money to borrow and then the lender allows you to access the money any time. As a borrower, you can take out money anytime the need arises for as long as you don’t go over the maximum amount your lender has granted you, and for as long as you are able to make payments on time.

How can a line of credit help you?
The greatest advantage you can get from a line of credit is its flexibility. You can request your lender to lend you a certain amount of money, but you don’t have to use every cent of it. Also, with a line of credit, you don’t have to pay the interest of the total amount your lender has provided you. Instead, you have to pay back only the money you took out plus the interest rate. Finally, you have the option to either pay all the outstanding balance you have in your line of credit, or only make minimum payments each month.

Banks and financial institutions don’t often advertise the use of line of credit, but it is considered a budget-friendly borrowing option compared to the high interest rates and charges that come with credit cards and other borrowing options.