Vikas was on his way to visit his parents when he realizes that he has forgotten to buy gifts for his family members. And since it is the end of the month, he has no money in his account. He has no time to apply for a personal loan and he does not want to use any more of his credit card limit. What can he do in such a situation? Thankfully, he has a line of credit for instances like these. He could immediately transfer the money to his account and withdraw it to make the necessary purchases. Does that seem interesting and convenient? Here is everything you need to know about a line of credit-
What is a Line of Credit?
A line of credit, commonly known as LOC, is a type of arrangement between a financial institution e.g. a bank, and a consumer within which it is established that the customer can borrow a maximum loan amount from the bank. The borrower can access money up to the allowed limit from the aforementioned line of credit at any time. The only condition is that they can not exceed the agreed-upon credit limit. A line of credit is said to be a type of revolving account or an open-end credit account.
Reason being- this arrangement allows the borrower to spend the money, repay it to the lender before a set date and then spend it all over again in a virtually endless, revolving cycle. Another example of a revolving account will be credit cards. Revolving accounts are different from other types of loans such as home loan, car loans, and personal loans. For an installment loan, aka a closed-end credit account, customers borrow a set principal amount and repay it in equal monthly installments, known as EMIs until the loan is completely paid off. Once the total amount has been paid off, the customer can not use those funds and if there is a need, they have to apply for a fresh loan.
How does a Line of Credit work?
All LOCs consist of a set amount of money that can be borrowed as needed, paid back and borrowed again. The amount of interest, size of payments and other rules are set by the lender. Once you borrow money from your line of credit, interest usually starts to accrue and you’ll have to start making at least the minimum payments, the amount of which will be added back to your available line of credit as you make them. But once your draw period ends, you’ll enter the repayment period, in which you’ll have a set time to pay off any remaining balance. Keep in mind, making only minimum payments may cost you more in interest in the long run.
Benefits of a Line of Credit
There are many benefits of having a Line of Credit at your disposal such as-
Interest Is Charged Only If You Use The Funds
Getting approved for a Line of Credit does not incur any cost of its own. That means that you can get the back up of a credit line without having to pay anything. It is only when you use money from the allocated credit line that interest is charged from you.
Use Funds For Any Purpose
A line of credit is similar to personal loans in this aspect that they are both multi-purpose. Once the funds are transferred to your account, you can use them for varied purposes as long as they are legal. This means you are not restricted to use the credit amount only for one purpose, you can use the money in a manner of your liking.
Instant Cash
Getting instant cash seems like a difficult task considering the fact that even instant approvals can take a few days to transfer the amount to your account. But since in a line of credit, there is no need for a getting an approval later, you can get approved in advance and get instant cash whenever you need.
Cheaper Than Credit Cards
The interest rate of a Line of Credit is generally lower than what is charged on credit cards. Hence making it a cheaper option for use. Also, the limit on a Line of Credit is usually quite higher than that offered on credit cards. Therefore, a Line of Credit can be viewed as a better option than to get a credit card.
Easy To Obtain
The process of obtaining a Line of Credit is very simple. You just have to download the IndiaLends app, visit the IndiaLends Xpress section and avail a Line of Credit. Once approved, it is just a matter of a few taps to transfer the funds to your account whenever you need.
Now that you are familiar with the benefits of a Line of credit, what are you waiting for? Explore it now by downloading the IndiaLends app. If you have any questions, do let us know in the comments below. We’d love to answer them. Until next time!
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