What is Line of Credit
Line of credit is a credit instrument being sourced to individuals, businesses, enterprises or government by financial institutions, including banks and NBFCs. Credit line is a loan credit offered to the borrowers in which they can utilize even small amount from the total sanctioned line as per their requirements. It is not compulsory to take loan amount in full, as in the case of other types of loan. Enterprises or consumers just need to pay the interest rate only on the borrowed amount.
Its majorly instant fund offered to borrowers at their disposal. Enterprises and consumers just need to pay an unused line fee or annualized percentage fee on the outstanding credit which is not used or withdrawn. Creditworthiness of consumers is primarily considered by financial institutions, banks and NBFCs before offering credit lines to them. Credit line of a customer is the maximum amount of funding he/she is allowed to take offered by banks and to be repaid in defined time frame.
Eligibility – Line of Credit
- Good credit/CIBIL score
- Creditworthiness of the borrower
- Decent tenure of business existence
- Valid and authentic business documents and certificates
- Stable credit and financial history
- Business existence with profitability
Features of Credit Line
Unsecured: Consumers taking credit line does not have to worry about providing any collateral or security, as it is an unsecured loan. No collateral is required for availing a credit line.
Interest Rate: Borrowers enjoy the freedom of paying the interest rate on the amount utilized and not on the total amount. Eventually, with the help of this feature the borrowers save large amount by not paying the interest rate on the loan amount which is unused. Furthermore, reduces the burden of paying off EMIs.
Higher Loan Amount: Loan amount offered under Credit line is higher, as compared to the other loans. Line of credit is termed under business loan, wherein high loan amount can be availed by MSMEs.
No Hidden Charges: There is no extra or hidden charges levied on the initial amount borrower or on the unused credit line or the total sanctioned amount.
Flexible Re-payment Tenure: Every financial institution that offers Line of Credit has defined their respective repayment tenures that can vary from lender to lender. Borrowers find it flexible and moreover it offers relaxed interest rate that needs to be re-paid in form of EMI for only the money borrower from the issued credit line.
Credit line is considered as both secured and unsecured. Credit line or line of credit can be used in various forms that include discounting, demand loan, overdraft protection, commercial bills purchase, and revolving credit card account and so on.
How to get a Line of Credit?
Applying for a Line of Credit has always been a simple process for enterprises and organizations. Most of the banks and NBFCs grant Line of Credit for both personal and business purposes. Line of Credit is available for individuals, business owners and for related business purposes, being a secured and unsecured loan. Interested applicants can apply it online by visiting the official website of the bank or NBFC. Once the filled application form is submitted on the bank’s website, one of the banks’ representatives shall get in touch with the applicant. The bank will verify the submitted financial documents and once the bank is satisfied, shall issue the credit line, as per the eligibility of the customer.
As compared to the other types of loans, Line of Credit gives you lot more flexibility in terms of loan repayment tenure, EMI to repay, loan amount and much more. However, the interest rate charges for Line of Credit are comparatively higher, as compared to other or general loans. On the other hand the interest rates of credit line are significantly lower than the charges on the usage of credit cards.