Line of credit – Your way of getting loans

Line of credit can really help you if you are looking for a loan which you can available in small instalments as per your requirement over an extended but fixed time period.

If you have to borrow money there are loads of options for you to select from. Borrowers can go for loans with interest rates from banks, or can get their stuff mortgaged in a pawn shop, or can take help of payday lenders or can even use your credit cards borrow some money from friends or family or can also can turn to internet and see for some help from there.

Although the lesser known fact is the use of line of credit for borrowing money. Businessmen and entrepreneurs have been using line of credit in order to compensate the lack of funds. They can use the funds in order to avail those opportunities or can even take advantage of the strategic investment opportunities. But these are not very popular with individuals or private takers. These lines of credits are not really advertised well by banks and this can be there for their unpopularity among individuals. Below are some basic information which you must know about line of credits.

What it Is

A line of credit refers to personal loans with bad credit  under which the lenders agree to offer a fixed amount to the borrower but the disbursal does not take place in one go. Instead the borrowers are offered a fixed time duration during which they can withdraw the loan in instalments as and when they require. The amount withdrawn gets added to the value of loan taken earlier and each time one has a new principal till they time they reach the upper limit permitted on the loan.

These loans are quite different from the credit cards. IN fact a lot of people get confused as the credit cards too offer a line of credit for a fixed amount which the card holders can use anytime and anywhere they wish. This facility can be used for almost any purpose and there is no limitation concerning the use of the same. Unlike the credit card, the line of credit under the loans by the lenders, one can use the money for specific purposes as agreed by the lender.

Why would banks like to offer such products where their return on the money lend takes all the time to come to them. The reason again brings us to recession. With the bad economic conditions, the risk taking ability of the individuals has reduced greatly. There are less borrowers who are willing to take loans and this has affected the very bottom line of the lenders. In order to give fillip to their business, the lenders have come up with the concept of the line of credit which allows them to get more borrowers attracted towards them.

When a Line of Credit is Useful

There are a lot of occasions when the banks are not willing to offer loans to individuals in a lump sum. This may be because they are not too convinced with the applicants financial credibility and would like to offer them loans which the borrowers need to take in an instalment manner. If one looks from the borrowers perspective a lot of time they might not require the complete loan amount as a lump sum. In fact, they would look out for an opportunity to take the loan as and when they require. This offers them the flexibility to not begin with heavy interest payment the moment they take the loans. In fact with a staggered loan, they would always have the flexibility to take the loans as and when required by them.


Like a loan the line of credit amount has to be repaid within a specified period of time and it would also be charged with certain amount of interest on the money borrowed. Also like a loan the credit score of a person can be of much help while borrowing money.

Pawn Loan/Payday Loan

There is a very bleak similarity between lines of credit and the payday loan. The similarity though is just that payday borrowers borrow money frequently from time to time and repay it as well as and when they have the required money. A pawn shop or a payday lender does not really consider the motive for which the borrower is borrowing money. It is not of much concern to the lender. He or she is just concerned about the timely payment of the loan.

When we look at the payday loans and the line of credit the interest rate on the two works out to be a lot different. While the interest rates on the line of credit are way too low that on  the payday loans are astronomical. Another area where we can look at the two loans is the approval process. While getting a payday loan may be an affair of just a few hours and there is no credit check required in the same. However, in case of the line of credit the approval take quiet sometime. The amount of money approved under the two loans has no comparison at all. While one can get really small sums under the payday loans , under the lines of credit one can really large amounts.

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