What Is a Line of Credit?
A line of credit is a flexible loan from credit provider or lender. Alike a credit card that offers you a fixed amount of funds—funds that you can use when, if, and how you require—a line of credit is a definite amount of money that you can access as desirable and then repay instantly or over a pre-stated time frame. As with a loan, a line of credit will charge interest the day money is borrowed, and borrowers must be approved by the credit provider, with such approval a by-product of the borrower’s credit rating and/or association with the lender. Understand that the interest rate is usually variable, which makes it tough to expect what the money you borrow will in fact end up costing you.
Lines of credit be likely to to be lower-risk income sources comparative to credit card loans, but they do obscure a lender’s earning asset management to some extent, as the outstanding balances cannot actually be controlled once the line of credit has been approved. They address the detail that lenders are not offensively concerned in underwriting one-time personal loans, mainly unsecured loans, for most borrowers. Similarly, it is not cost-effective for a borrower to take out a loan each month, repay it, and then borrow again. Line of credit addresses both of these concerns by making a definite amount of money available if and when the borrower requires it.