Line of Credit

What is line of credit?

A line of Credit is a form of revolving credit. It is the amount that is loaned to you by a financial institution. (E.g. Banks). Unlike a loan, a credit line can be used when needed until its credit limit is reached. The amount borrowed to the lender will be given a specific date to repay the amount. Interest will start to accrue upon withdrawal. At the same time, credit availability will be reduced. The user will have to repay the amount withdrawn to increase the credit available.

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Types of Line of Credit

-Secured

• Mortgage
• Vehicle Funding

-Unsecured

• Personal Loan
• Credit Cards

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Pros of Line of Credit

1) Controlled Repayment

Choose any amount to pay back at the end of the month however interest will be accrued

2) Longer-Lasting Credit

Do not require an application of a new amount every time financial aid is required

3) Expenditure Control

Do not require us to spend the entire credited amount. (Spend only what is required)

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Things to look out for

1) Debt and Damage to credit score

-Failure of payment will lead to a recurring debt and damage to credit score which affect future loans.

2) Fees

-Include administration fees

3) Higher Interest

-Failure of payment at the end of the month becomes a problem. Revolving credit has a higher interest rate as compared to loans.

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