Line of Credit
A line of credit is an available amount of money that an individual or business can borrow without requiring any further approval from the financial institution that issued it. For example, if you have a line of credit of $10 000, you can borrow $1000 to do home repairs and pay it back over time. As you make your payments, the amount becomes available to use again.
There are many cases where a line of credit can be useful, such as paying for urgent car repairs, home renovation, or other unexpected expenses. Businesses can also use it to purchase necessary materials and machinery. Besides its flexibility, one of the other advantages of a line of credit is that the interest rate is usually lower than on most retail credit cards. This could make it advantageous when seeking to consolidate balances and reduce interest payments.
The minimum amount of payment that is required on a line of credit varies between financial institutions. Most have a minimum payment based on a percentage of the outstanding balance, like on a credit card.
There are also multiple ways to access your available credit. If you also have a checking or savings account at the same financial institution, you can transfer funds between your credit line and your bank account. You can also write a check on the credit line, or access the funds using an ATM card.
The amount of credit that a borrower will qualify for is based on their credit history, financial resources and income. If you are a homeowner, you can sometimes obtain a higher line of credit by using some of the equity on the value of your home as collateral as well.