What Is Line of Credit? How Does Line of Credit Work?
What Is Line of Credit?
A line of credit is much similar to credit card, but here it is not like a plastic card with money. Once you open your line of credit account, you have the power to attain funds as per your wish and requirements. There’s no need to re-apply for refinancing at the time for your next cash requirement. It is because, as long as your outstanding balance is remaining, your line of credit is staying open.
To get a line of credit, the first thing you have to do is fill an application. Once you get approval, the maximum credit amount for which you are approved is your maximum credit limit. For instance, you are applying for $5000, but you need only $1000, you just can take $1000 as per your requirements and then you have an outstanding balance of $4000, which you can use for later needs.
You can use your credit to pay bills or manage your mid-month unexpected expenses without any restrictions. You will timely get your statement of your left outstanding balance that lets you know how much balance you have to take for next time. You can withdraw unlimited cash advances until you reached your maximum credit limit.
How Does a Line of Credit Work?
Line of credit is very much similar to credit card, in which you have the full freedom to use your funds at any time. The main difference between both is that the line of credit interest rates is much lower as compared to a credit card. Also, if you choose a line of credit, you can get more spending limits, while most of the credit cards offer lower limits.
If you are interested to get a line of credit, you will need to open an online line of a credit account by filling a form. Once get your line of credit, you will get a monthly statement that showing your outstanding balance, payment due to details, and interest summary. If you draw the funds, you have to repay the money every month as per your due date.
Different Types of Lines of Credit
There are numerous reasons for choosing the Line of Credit as per your current financial situation. It can be used to fill the financial gap, pay your urgent expenses, or fund your children’s school/college expenses.
Line of credit is much cheaper as compared to credit cards, and there are two types of it, as mentioned below:
- Secured Line of Credit: It means that your line of credit is secured by collateral, such as a vehicle, home, or any other valuable assets you have. Due to less lender’s risk, it comes with a much lower rate of interest.
- Unsecured Line of Credit: This type of line of credit is the opposite of a secured line of credit, which means, it is not backed up with collateral. It is easy to get but come with high-interest rates.
How to Use a Line of Credit?
Once you get your line of credit, it helps you to fulfill your any financial goal. Below are some tips mentioned that tell “How to use a line of credit:”
- Use it only for big purchases: For instance, if you renovate your home, try to pay directly for small expenses, and avoid using your line of credit funds. In short, paying your small expenses on your own can help you to avoid interest on all such small purchases.
- Try to make early payments: If you are able to pay your dues earlier than it will help you to save lots of interest on your payments.
If you already know about “How to use your line of credit”, then you can manage your budget effectively, and can borrow more.
The Bottom Line
Online line of credit Canada can be a smarter financial option for you to keep your bills under control. But there is much other best option available as well that you can choose. The best thing you can do is to deeply check your current financial situation from top to bottom, and then compare loan options like 30 day loans. Borrow what you can afford to pay back easily on your due date.