What is a credit line? A credit line is a flexible form of loan that allows you to access money from a specified source of funds. You can withdraw money up to a certain limit and are required to repay the amount in instalments. The rate of interest is charged only on the amount you borrow. Credit lines are offered by banks, financial institutions, and online lenders. Many online lenders such as CASHe have a fast-tracked process that allows them to offer instant credit lines with shorter application and approval times.
The most common uses of a personal credit line are for home renovation projects, further education, and vacations. It is also useful for any project where the expenses might be unpredictable or recurring such as starting a new business or moving to a new city.
If you are thinking of applying for a personal credit line, here are 5 secrets you need to know.
Fixed Interest Rates Are Not Always Fixed
Interest rates for loan products can be fixed or variable. A fixed interest rate remains the same throughout a set period, while a variable interest rate can change depending on some underlying benchmark such as market interest rates. The secret is that even fixed interest rates can change on the whims of the lender.
To avoid being blindsided by interest charges or any additional fees such as processing fees, documentation charges, and late payment penalties – read the terms of the loan agreement thoroughly. Before lenders decide on the interest rate, they are required to send a notice to their borrowers. Remember to check the advanced notice period your lender follows.
You Can Get Rejected for a Credit Line With a High Credit Score
A credit score is a 3-digit metric record of all your previous borrowing and repayment activity. Most lenders need you to have a credit score of 600 or above to accept your application for a credit line. However, that is only one of the many requirements that a lender may have.
Eligibility requirements can include age, income, employment, financial documents, total debt, and current EMIs. Also, you need to demonstrate good financial health, only a fraction of which is represented by a credit score.
Not All Personal Lines of Credit Are Unsecured
Loans that require collateral are known as secured loans, while those that do not need you to put up any asset are known as unsecured loans. While most personal credit lines are unsecured, there are exceptions. A popular example of a secured credit line is a Home Equity Line of Credit or HELOC. In this loan, the collateral is the borrower’s equity in their home, that is, the difference between the home’s value and the mortgage balance.
Since secured loans offer the lender some protection if the borrower is unable to pay back the money, they have lower interest rates, higher credit limits, and raised spending limits. However, if you fail to pay back the personal line of credit, you stand to lose your property.
Credit Cards Are a Form of an Instant Credit Line
Credit cards are essentially a form of an instant credit line. Both options give you the freedom to spend the borrowed money as you like. They are both forms of revolving credit, which allow you to borrow money as and when you like up to a certain limit. Once you repay the borrowed money, you are allowed to borrow again from the same funds.
However, personal credit line loans offer flexible repayment schedules, lower interest rates, and higher credit limits compared to credit cards. This also makes them harder to get approved for.
Some Lenders May Offer You a Grace Period for Repayments
It is imperative that you make your instant credit line repayments on time to maintain and improve your credit score. However, lenders understand that borrowers may face unexpected expenses, cash crunches, or financial crises. Thus, they may offer a grace period after your repayment deadline during which you can pay your instalment and not be charged a late fee.
Download the CASHe app and get started on your credit line loan journey today!