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WHAT IS A LINE OF CREDIT?
When borrowing money from a bank, a line of credit
is one of the more popular methods. Similar to how a
credit card
works, with a
line of
credit you are borrowing against a credit limit. You access your
line of credit by writing a check for the amount that you need to
borrow. The main difference is that unlike with credit cards, the
total balance of a line of credit is due to be paid in full at the
end of the loan term. Typical terms for the lines of credit we offer
range from 1-6 years.
Attributes of a Unsecured Line of Credit
There is a credit limit associated with a line of credit. This limit
is the most amount of money you can utilize against your credit line
at any given time.
There are two 'periods' associated with a line of
credit: the draw and payback periods. You are able to borrow the
money you need (against your credit line) during the draw period and
are only mandated to pay the interest or whatever minimum payment
your lender establishes.
During the payback period, you are no longer able
to borrow against your credit line and will be required to make
payment on interest + principal on the amount that you have
borrowed.
Read the Fine Print!
Before signing any paperwork associated with a line of credit,
make sure you understand when your draw period ends and when you are
going to be required to re-pay your total loan. Your contract will
also state whether or not you will have the option of being able to
extend your draw period, or if you will be required to immediately
pay your balance in full or if you can pay over time.
Similar to standard personal loans and credit cards, a line of
credit has an interest rate associated with it. The interest rate of
a line of credit is usually a variable rate that will change every
month. Lines of credit usually have lower rates than those of
fixed-rate loans.
Personal Loan Tips
Pros and Cons of a Line of Credit - Find out if a line of
credit is the best option for your needs.
Line of Credit Vs. Credit Cards
Line of Credit vs. Lump Sum
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