Line of Credit FAQ
All About Lines of Credit
? What is a line of credit?
A line of credit is similar to a loan and is an amount of money that a financial institution, usually a bank or private lender, allows a customer to draw on for whatever use they require. Funds used from the line of credit must be repaid within an agreed amount of time and the limit of the money provided must not be exceeded. A customer can operate within the line of credit for any amount of time as agreed by the bank or lender.
? Why apply for a line of credit instead of a lump sum loan?
A line of credit gives you control over the exact amount you borrow. It is a flexible solution. Imagine you know you might need up to $500, but it is possible you will only need $200. If you are approved for a line of credit for $500 and only end up needing $200, you can just borrow the $200.
? Do lines of credit have any drawbacks vs. lump sum loans?
In some cases lines of credit end up costing more than lump sum loans.
? How much is the interest on a line of credit?
The interest on a line of credit depends on the lender. Contact your lender directly to get the exact figures.
One thing which is very useful to know about lines of credit is that the interest only applies to the amount you actually use.
So if you are approved for $500 and borrow only $200, you will only be charged interest on the $200.
? How much credit should I apply for?
That is up to you. Apply for enough to cover your expenses. Just remember to only actually borrow the minimum you need since you will be charged daily interest on that amount.
Managing Your Line of Credit
? Do I need to use all of the credit I am approved for?
No. That is one of the great things about lines of credit. You can use all or any part of the agreed amount.
? When are line of credit payments due?
The payment schedule will be determined by the lender. Usually, your payments are monthly, or they can be set up to coincide with your paydays.
? How can I see how much credit I have left?
The lender should provide you with tools to check on your credit balance at any time.
? Can I borrow more after I pay off my principle?
Yes, you can.