A Look at the Different Types of Lines of Credit That You Can Access
It is almost impossible for an individual to go through life without taking out at least one loan or using a credit card. Our entire society has been built around the banking system, making it an essential part of our day-to-day lives. As a result, banks and other private lenders are constantly coming up with new deals that offer various advantages and market them as aggressively as possible. However, not all loan offers are made equal and some give borrowers more freedom than others. This is usually the case when it comes to lines of credit. This type of debt is not as popular as personal credits, although it is, in many ways, the more advantageous choice.
What Is a Line of Credit?
A line of credit is, for all intents and purposes, a secured bank loan that has a higher value than regular loans and is usually offered for a minimum of 5 years. In many ways, lines of credit are more similar to credit cards than to regular loans. When an individual gets a line of credit, the lender opens a bank account for the client and attaches a certain credit limit to it. The borrower then has the option to withdraw as much or as little as he needs and only pays interest for the amount of money that he uses. For example, if a borrower gets a £25,000 line of credit and only withdraws £5,000, he will only pay interest for the amount of money that he has used. This having been said, he does have unrestricted access to the whole amount, however, he is not obligated to withdraw a particular sum of money.
In most cases, individuals apply for lines of credit when they need to pay for large projects such as home renovations, expensive medical procedures and treatments, or holidays abroad. While there are no restrictions on what lenders can do with the money from the line of credit, most lenders do offer specialised ones in order to allow individuals to borrow as much as possible. Here are the main types of lines of credit:
What Are the Main Types of Lines of Credit?
· Personal Lines of Credit
Personal lines of credit are, as the name implies, given for personal needs. They do require that the applicant have a good credit rating, but there are no restrictions on what can be done with the borrowed money.
HELOCs, or home equity lines of credit are lines of credit that use the equity that a homeowner has in his home or other properties. These have a longer term and a greater value, however, they come with the risk of losing one’s property to the bank. This having been said, please keep in mind that it is usually not in the interest of most lenders to take possession of the borrower’s property and will first try to work with him in order to find a mutually agreeable solution if he cannot repay the money.
· Business Lines of Credit
Business lines of credit are given out to businesses and can use both the company’s assets as collateral, as well as those of the business owner. They have often restrictive in terms of what can be done with the money, however, this depends on the lender.
These are the main types of lines of credit that can be accessed from most lenders in the country. While they do come at a greater risk than regular loans, they offer considerable advantages. For companies that simply require access to a large amount of money to use as running capital, these can be highly useful tools. As for regular people, they can sometimes be the better choice when compared to credit cards.