A line of credit is a loan that does not end. With a traditional loan, the consumer borrows a specific amount of money which is to be paid back according to an agreed loan schedule. The borrower can’t get any additional funds without taking out a second loan, and can’t “reuse” the loan once it has been paid off as the loan conditions have been met and expired.
A line of credit on the other hand gives the customer a specific amount of credit to manage as they choose. The borrower can use any amount of the credit up to the credit limit. One big advantage with a line of credit is that the customer can only use the credit they need. In a traditional loan you have to take out the whole amount of money and pay it all back.
Using a revolving line of credit you can limit its borrowing, and the amount of debt it takes on. A flexible line of credit can be linked to a bank account, meaning that the customer can transfer funds into the account when they are needed. The difference between a line of credit and a credit card, is that a line of credit doesn’t need to come with a credit card.The funds obtained from a line of credit can be transferred to an existing bank account or directly to creditors.
Another advantage to a line of credit is that it can be used to cover payments from a bank account when the funds are not available in the account. This means that you can cover expenses during periods of low cash flow.
For a business customer a line of credit can be a much better deal than a credit card. This is because the interest rates on lines of credit are often much lower than those on credit cards.
