What is a Line of Credit?

A line of credit is any credit source extended to a government, business or individual by a bank or other financial institutions. It may take several forms such as overdraft protection, demand loan, special purpose, export packing credit, term loan, discounting, purchase of commercial bills, traditional revolving credit card account. It is in effect a bank account that can readily be tapped at the borrower's discretion. Interest is paid only on money actually withdrawn, although the borrower may be required to pay an unused line fee, often an annualized percentage fee on the money not withdrawn.

The article discusses the following:
1. Similarity of Lines of Credit and Credit Cards
2. Types of Credit Lines
3. Benefits of Line of Credits

What is the Similarity of Lines of Credit and Credit Cards?

A line of credit is very similar to a credit card because as soon as you repay your balance in part or in full you can use the funds again. That is why the lines of credit are considered revolving credits. It can be unsecured or secured by an asset owned by the borrower. With most Canadian banks you can access the funds in your line of credit by writing a cheque, using your bank card, and through online banking. The financial institution that will grant you this line of credit will require a minimum monthly payment. This varies depending on the bank and the amount you have borrowed. The borrower has to repay everything they have borrowed on the line of credit on the maturity date of the loan. All major Canadian banks such as RBC, TD Bank, BMO, Scotia Bank and CIBC offer lines of credit to their customers. The funds available in the line of credit account can be withdrawn and used at any time during the life of the line of credit. The borrower can withdraw part or all available funds from his line of credit and they can also repay the funds back at any time.

What are the Types of Credit Lines?

The most common line of credit is the personal line of credit. Many Canadians have personal lines of credit usually with one of the leading Canadian banks. The money you have access to through your personal line of credit can be used for virtually anything – renovations, buying TV, paying for vacation, investing and even consolidating debt. You can draw funds from your line of credit to pay off credit card debt. The personal line of credit limits usually range from a few thousands to hundreds of thousands of dollars. Another type of credit line is the business line of credit, also known as operating line of credit. The business lines of credit are used by millions of small, medium and large business worldwide, to fund their day-to-day operations.

What are Line of Credit Benefits?

One of the major benefits of credit lines is the fact that they have lower interest rate compared to most credit cards. Using a line of credit is very convenient and in effect is no different than using your bank checking account. Another benefit is that you can be flexible repaying your loan. If you have the funds you can repay everything borrowed on the credit line at once without a penalty. The line of credit is a great way to have access to funds whenever you need it.

Availing of Lines of Credit

It is easy to get lines of credits form banks and financial companies. It is also relatively easy to borrow money. What consumers have to take care of is their reputation. You should only borrow money that you are capable of repaying. It is important to keep one’s credit rating unblemished.


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