How Line of Credit Works
a line of credit is an arrangement where a bank offers a maximum loan amount that the borrower can draw upon at any time. the borrower, which can be an individual, business or government entity, has the flexibility to take out as much as they want up to the maximum amount. lines of credit have a couple of important advantages. first, borrowers are only charged interest on the funds they actually draw. this is what differentiates lines of credit from traditional loans. also, the interest rate, which is typically variable, is often lower than that of an one time loan. take ? who owns his own business and therefore has irregular income from month to month. he applies at the bank for a personal line of credit worth $10,000 just in case he ? cash for a period of time. after checking his credit history, the bank agrees. if ? only draws $1,000 from his credit line, he's only charged interest on that withdraw amount. he sleeps well at night, knowing that $9,000 of credit is available in an emergency. if he took out ? traditional loan on this amount, he would be charged interest on the entire loan amount for $10,000 whether he uses the funds or not. most personal lines of credit are unsecured, so they don't require collateral. your credit card is an example of an unsecured line of credit. the popular home equity line of credit is an example of a secured line of credit where the bank places a lien on your property. the lender takes on less risk because of the lien and therefore offers a slightly lower rate. one pitfall of a credit line is that borrowers maybe tend to withdraw more than they actually need, since the funds are readily available. as with any loan, borrowers should evaluate the pros and cons before applying.
- line of credit・・・融資限度