Understanding Line of Credit




We have often heard of the term Line of Credit or LOC. An LOC is the kind of arrangement set between a customer and bank by any bank or other financial institutions to define or establish the maximum amount which can be borrowed by a person. The maximum limit for this fund is known as the Credit Limit. As long as it doesn’t reach this limit, a customer can keep on borrowing money from the financial institution. One must make agreements with the bank before borrowing money and should do payment on time.

A lender sets the amount of money which can be borrowed by a customer, the interest and size of payment. It can be done in different ways. While some LOC allows the use of cheques, others allow only using debit cards. A LOC can be secured or unsecured. An unsecured LOC will have more rates of Interest. The most important part of LOC is that you have to pay interest only for the amount you have drawn. That is, even if you requested for a certain amount, if you don’t withdraw it all from the bank, you just have to pay interest for the withdrawn money. Moreover, one has the option to repay all at once or as monthly payments.

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