Everyone has situations in life when suddenly there are unexpected expenses, but he does not have extra money to pay them. It can be an unexpected car repair, an unplanned visit to the doctor or something unexpected that requires unforeseen expenses. In such cases, there are various financial solutions, and one of these solutions is a credit line. Fast credit, consumer credit, is already pretty well known to everyone, but not long ago banks and private lenders began to offer their customers a new service – a credit line. In general, we can say that a credit line is very similar to other types of loans, and also includes all the features that a credit card represents, but there are several significant nuances that every borrower needs to know. A credit line is a loan where it is up to the client to designate what will be the limit of the credit line and what will be the term during which this loan can be used. Moreover, the borrower is not obliged to specify for what purposes the additional funds will be used. In the case of a line of credit, a person can use as much of the credit limit as he or she needs, if the entire amount provided is not needed, it does not have to be used. Similarly, the user of the line of credit, the money received can be used when they really need it, this does not have to be done immediately after the money has been transferred to your account. But, the amount of money in the line of credit can only be used within a certain period of time. Unlike an overdraft, with a line of credit there is less risk of getting into heavy debt, because the borrower determines how long he will use the line of credit and how much he will spend.
As soon as the customer starts to spend the credit line funds, they have to be repaid right away. In one month, the used amount of credit line must be repaid, you can do this in full and you can pay only a certain minimum amount. Then, the client can borrow the credit line funds repeatedly. One of the advantages of a line of credit is that the client, the amount of money he borrowed, can pay back to his lender faster. And most importantly, it saves on interest. Whereas with other types of credit, such as quick loans, despite the fact that the money is paid back faster, you still have to pay the interest in full, whereas with a line of credit, the customer only pays interest on the money he has actually used. But, the biggest benefit of a line of credit is that if the client has not used the loan, then there are no fees to pay for it. This way, the line of credit acts as a guarantee – if the additional funds are needed, then they can be used. If they are not needed, then they don’t have to pay for them, because the bank or private lender hasn’t lost those funds. Although, for such cases, quick loans are designed to provide the borrower with money at a time when it is urgently needed, but still, credit lines are a better and more profitable option. If a person has access to a line of credit, then that amount of money is in a bank account. This means that they can be used at any time of the day. Fast loans are not always possible because the time in which they are available is now limited. Also, quick loans are often not available on holidays, or on weekends – the time it takes to get a loan is shorter.
Both individuals and businesses can use a line of credit. Individuals can use a line of credit as security and a sense of security in the future when money may suddenly become scarce. It can be used when their salary is spent and they are a few days away from their monthly income. For businesses, it is a tool that can be used at times when profits are down. For example, businesses that build roads have the biggest profits during the summer season, and they need funds during the winter season as well. Thus, a line of credit can help seasonal businesses not go bankrupt at a time when profits are down.
A line of credit is also a more favorable loan service in terms of interest rates. Unlike quick loans, which are known for their high costs (unless you use the first, free loan), the interest rate of a line of credit is lower, which means that the customer will have to spend less money for the lender’s charges. Of course, before that, at the lending institution of your choice – a bank or a private lender – you need to ask about the assigned interest rate, because it varies everywhere. Before you apply for a line of credit at the first lending institution that is closer to home or is the first advertisement on the internet, you should definitely compare lenders. This step, will help everyone, the would-be line of credit user to find the best option for themselves. The comparison needs to be done because the minimum and maximum amounts of the line of credit offered, are different. The same goes for the terms – not all lending institutions offer a line of credit for more than a year. Therefore, a client should always do some research before choosing a lender.
In order to get a line of credit, the borrower (individual or business) needs to meet certain conditions of the lender. One of the most important factors that both banks and private lenders will be sure to check is the client’s ability to pay. No one will give a credit line if a person does not have regular and stable income, because otherwise, the lender can immediately write the money off as a loss. When choosing a lender, the borrower will need to understand that a minimum salary is required to qualify for a credit line. For example, to get a credit line with American Bank, the client must have a regular income of 500 USD, after taxes. But with other creditors, these conditions might be lower. In any case, one thing is clear – the person should have a source of income, in order to receive a credit line.
Likewise an important factor, which lenders will definitely pay attention to, is a person’s credit history. Credit history shows all of a person’s past and present credit obligations. In order to get a line of credit, a positive credit history is necessary. This means that if you have had any credit commitments before (a fast loan, a consumer loan, etc.), there can’t be debts in them, and payments can’t be late all the time either. It used to be a lot easier to get credit because it was impossible to get full information about a client’s credit obligations, but now you can see all his previous and current obligations, which means that it is impossible to hide anything from creditors. If, the future user of the line of credit has not been on the list of debtors for a long time, then there is a great possibility that the line of credit can be denied to him. The existence of debt in the loan obligations means that the lender may suffer losses because the customer cannot pay the payments. Therefore, the risk is high and in order to avoid possible losses, the line of credit is simply not available. This means that all credit obligations should be handled very responsibly, also the credit line payments. Debts and regular delays are fixed and therefore affect the possibility of getting any kind of loan in the future. When a person wants to get a line of credit, then their credit history should be positive and they should not have any outstanding credit obligations.
There are other restrictions on borrowers as well. One of them is the age. In order to get a credit line, you must be of legal age. But, each creditor can have different requirements in this respect. It can be that someone will provide a credit line only when the borrower is at least 20 years old. Restrictions also apply to retirees. Some lending institutions will extend a line of credit to customers under the age of 70, but there may be lenders who have an even stricter age restriction, such as 65. So, this is another factor to be sure to compare among lenders that issue lines of credit.
A credit line is only available to citizens of the United States of America or those who have a permanent residence permit. When applying for the credit line, one should take into account that personal identification documents might be required. Also, the customer needs an e-mail address, a bank account, and an active phone number. You can apply for a line of credit not only in person at bank branches, but also at an online bank or on the websites of personal lenders.
A line of credit versus a consumer loan?
If we compare a line of credit to a consumer loan, then we have to say that both types of loans are very similar, both in interest rates, repayment terms, and even in the loan amounts that can be borrowed. But, of course, there are also some differences. The biggest difference is that a consumer loan already at the beginning of the loan you need to determine the total amount borrowed, while with a line of credit you can borrow in installments until you reach the maximum limit. Borrowing in installments is very profitable, because the customer only pays interest on the money he actually received. This means that if you order 1500 USD and receive only 200 USD, you do not have to pay interest for the whole 1500 USD but only for 200 USD . Basically, a credit line is better if you don’t know exactly what your expenses will be, but if you have a specific purpose and amount of money to borrow just then, it is possible that in such cases, a consumer loan will be more advantageous.
Line of credit vs. quick loans?
If we compare a line of credit and quick loans, you can see right away that both are very different, and the only thing they have in common is that they are mostly issued by non-bank lenders. A line of credit has lower interest rates, longer repayment terms, larger loan amounts, and generally much better terms. Payday loans, for the most part, can be obtained quickly, and this is the main advantage of this loan. So, I would probably choose a line of credit, because after waiting a little bit, you can get the service a lot better.
Why do they create these services?
Credit line and credit limit, in recent months and over the years, has grown markedly in its popularity precisely because non-bank lenders are slowly trying to move toward long-term loans and to move away from short-term loans to something more akin to a consumer loan. But in order to compete with banks and offer their customers quality services, these businesses are trying to come up with new ideas. The line of credit and the credit limit, both services, were created for this very reason – to please the customer and beat the big banks in the United States, in order to get more profits. The credit line, for example, allows people to use Internet loans exactly as much as they need, so you don’t have to borrow more than necessary, and you can increase these loans at least 10 times, up to the established limit which the credit institution assigns you. And so that you don’t have to go to the bank, you don’t have to apply for a new credit card, this service can be very beneficial to people, and for good reason, non-bank lenders, are slowly moving in all these directions. The business of long-term loan commitments is a lot more reliable than the business of short-term loans, and perhaps the profits are not that great, but from such loans it comes long-term, but in money it does not turn out as quickly as in the case of quick and SMS loans.
