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![WHAT IS A LINE OF CREDIT AND HOW TO GET IT_- [A]](https://blog.mudrahome.com/wp-content/uploads/2020/06/WHAT-IS-A-LINE-OF-CREDIT-AND-HOW-TO-GET-IT_-A.png)
The line of credit is a credit tool that is made available to individuals, companies, companies, or governments of financial institutions, including banks and NBFCs. The line of credit is a loan offered to borrowers, where they can use even a small part of the entire approved line if necessary. It is not mandatory to include the total loan amount, as is the case with other types of loans. Businesses or consumers only have to pay the interest rate on the amount borrowed.
The mostly instant fund is made available to borrowers. Businesses and consumers only have to pay unused line fees or annualized percentage fees for outstanding loans that are not used or withdrawn. Financial institutions, banks, and NBFCs primarily consider consumers’ creditworthiness before offering credit lines. A customer’s line of credit is the maximum amount of financing that banks can offer and pay within a specified period.
Unsecured: Consumers using the line of credit do not have to worry about providing collateral since it is an unsecured loan. No collateral is required to use a line of credit.
Interest rate: borrowers are free to pay the interest rate on the amount used and not on the total amount. Finally, borrowers can use this feature to save a significant amount by not paying the interest rate on the unused loan amount. It also reduces the burden of paying EMI.
Higher loan amount: The loan amount offered under the credit line is greater than that of other loans. The line of credit is called a commercial loan, and MSMEs can use a large amount of credit.
No hidden fees: No additional or hidden fees are charged to the borrower for the original amount or for the unused line of credit or the total sanctioned amount.
Flexible payment period: Each financial institution that offers a line of credit has defined its respective payment period, which can vary from one lender to another. Borrowers find it flexible and also offer a flexible interest rate, which in the form of EMI should only be repaid to the borrower for money from the issued line of credit.
The line of credit is considered safe and unsecured. The line of credit or line of credit can be used in a variety of ways including discount, demand loan, overdraft protection, purchase of commercial invoices and revolving credit card account, etc.
Applying for a line of credit has always been an easy process for businesses and organizations. Most banks and NBFCs offer lines of credit for personal and business purposes. The line of credit is available to individuals, business owners, and related business purposes in the form of secured and unsecured loans. Interested candidates can apply online at the bank’s official website or at NBFC. Once the completed application form is submitted on the bank’s website, one of the bank representatives will contact the applicant. The bank examines the financial documents submitted and, once satisfied, issues the line of credit according to the client’s eligibility.
Compared to other types of loans, the line of credit gives you much more flexibility in terms of the repayment term, the IME to pay, the loan amount, and much more. However, the interest expense for the line of credit is comparatively higher than for other loans or general loans. In contrast, interest rates on lines of credit are significantly lower than the cost of using credit cards.
