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What is line of credit loan?

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Individuals often require additional funding apart from their salaries and many opt to apply for loans to cover their immediate needs. A line of credit loan is one viable option that can be accessed by individuals so that they can cater for their financial requirements at any given time. Basically, a line of credit involves an agreement that is entered between the lender (financial institution like bank) and the borrower where a maximum loan amount is set such that the borrower can access yahoo funds whenever he or she requires. The set maximum loan limit should not be exceeded and the borrower is obliged to repay the funds borrowed within a certain period. Interestingly, the borrower can borrow again from the same account. In other words, this is a revolving credit facility which operates like a credit card though they are not similar.

Features of a line of credit

The key feature of a line of credit loan is that it is a revolving source of money to the borrower and it never ends as long as he or she is capable of meeting the requirements set by the lender. Unlike other types of loans such as mortgages that can be paid up within the agreed period, a line of credit loan is continuous. As long as all the requirements for loan repayment are met, the borrower can borrow any amount that is less than the maximum at any given period. The other key aspect about a line of credit loan is that the borrower has an option to repay the money used in one settlement or monthly installments.

Benefits of line of credit loans

There are quite a number of benefits that can be achieved from using line of credit loans by the borrowers. For instance, the borrower only pays interest on the used amount of money not the entire loan sum agreed. This means that the variable interest rate charged is manageable since it only applies to the money used which in some cases may be very little.

The other benefit of applying for a line of credit loan is that it is unsecured implying that there is no collateral that is required in order for the loan to be approved. It is also easy to access the loan since it can be processed over a short period of time. However, it should be noted that the interest rates charged on line of credit loans are high since this this type of loan is not secured as indicated above. In most cases, the high interest rates are offset by the flexible repayment schemes available and this is another advantage.

Borrowers have the opportunity to use the line of credit loans for various purposes since the funds can be accessed at any given time and are not specific. The business funds & ideascan be channeled for other purposes like small scale businesses which in turn can help the borrowers to generate quick funds to repay the amount owed to the lender. This also helps the borrowers to maintain a clean credit record so that they can be in a better position to access other forms of loan should they require them.