For several years, Line of Credit has been included in the assortment of services of many banks. However, due to financial market trends and change in consumer needs it is currently also offered by alternative financial service providers. This service is becoming more popular among consumers every day.
The Line of Credit explained
What is a line of credit and how is it used? The answer is very simple – it is a loan with a fixed limit of the available amount of money, but with a non-fixed repayment schedule. A line of credit may be used whenever you need it and for the amount of money which is necessary at that moment. When preparing the offer, a certain amount of money is granted to you. It shall be at your service for an unlimited period of time as long as the amount granted to you will be spent. Therefore, the freedom of choice is delivered to the customer with regards to the terms and conditions of the use and repayment of the loan.
Upon understanding the market demand and adjusting to the consumer’s needs, several crediting institutions, as well as alternative finance service companies, have introduced lines of credit in their assortment of services. In their turn, lines of credit – hybrids – are mostly available among the alternative finance service providers. For these a fixed term and certain repayment conditions are determined unlike a bank line of credit. That restricts the freedom of the consumer to some extent. Considering the multiform offer of the market, consumers have rather broad possibilities to select the most appropriate line of credit for them, with the most beneficial and convenient repayment terms and a monthly payment amount.
Using the Line of Credit
The key advantage of the line of credit is control over terms and conditions of use and repayment, delivered at the discretion of customers. When preparing a line of credit, a customer receives the approved access to financial means in a certain volume, but it is the choice of the customer to use all of the funds or only a partial amount. A customer may spend the amount granted by the line of credit all at once or use it for a longer period of time by gradually spending a part of the total amount. This permits you to spend the right amount of money necessary to make a certain purchase. Besides, the interest payments are made only for the amount the customer has spent.
It is also important that interest is paid only for those days when the customer has used the money granted by the line of credit. Respectively, it is possible to return the spent amount in full, already on the next day, thus paying interest only for one day. The customer can pay back the amount of money granted by the line of credit in several preferred instalments within the time period.
Repayment of funds
Most often, both banking and non-banking creditors offer line of credits in the amounts, starting from a few hundred up to even several thousand euros for an unlimited period of time, providing a customer with an opportunity to vary on both the amount he or she wants to borrow, and the term, for how long he or she wants to use the line of credit. If a customer uses a part or whole amount provided by the line of credit, he or she shall gradually start to pay back the amount.
A customer can choose how fast to pay back the spent amount – at once in one lump sum payment, in several instalments or by paying back only the minimum monthly payment each month. Afterwards, when at least the minimum amount of monthly payment is paid back, the customer may repeatedly use the amount of the line of credit. Moreover, if a line of credit is granted, but is not used, a customer does not have to pay anything until it is actually used.
How to gain access to a Line of Credit
A customer has to apply for the line of credit, similarly to regular credit. The amount and interest rates are determined by individually assessing the financial status, credit history of each customer as well as the current cooperation experience with the company issuing the line of credit. The issuer shall become acquainted with the principal activities and income of the customer from that, as well as gain confidence on the ability and undertaking of the customer to cover his or her financial liabilities.
The core benefits
Lots of people are starting to use a Line of Credit for covering various unexpected expenses because it is a good solution when money is required for immediate bigger purchases or a long planned goal. This product is also suitable if you want to use the necessary amount gradually – in parts. This type of loan is like an airbag for the moments when unpredicted expenses occur because the granted line of credit is always available, regardless of the day and place of location. If a customer has applied for a line of credit, he or she shall not think about where to get the necessary additional loan in case of an unexpected situation. If a customer has applied for a line of credit once, he or she may be confident that, in case of need, money will be available.